employee selection transforming healthcare through innovation

Employee selection

Annual Report 2018

Please note: this PDF contains only the pages highlighted in the list of

contents below. The contents of this file are qualified in their entirety

by reference to the printed version of the Philips Annual Report 2018.

The information in this PDF has been derived from the audited

financial statements 2018 of Koninklijke Philips N.V. Ernst & Young

Accountants has issued unqualified auditors’ reports on these

financial statements.

Transforming healthcarethrough innovation

Contents

Message from the CEO 31

Board of Management and Executive

Committee

52

Strategy and Businesses 63

Transforming healthcare through innovation 63.1

How we create value 83.2

Our businesses 103.3

Our commitment to Quality, Regulatory

Compliance and Integrity

193.4

Financial performance 214

Performance review 214.1

Investor information 404.2

Societal impact 435

Social performance 435.1

Environmental performance 485.2

Supervisory Board 556

Other information 567

Reconciliation of non-IFRS information 567.1

Five-year overview 657.2

Forward-looking statements and other

information

667.3

IFRS basis of presentationThe financial information included in this document is based on IFRS,as explained in Significant accounting policies, of the Annual Report2018, unless otherwise indicated.

References to PhilipsReferences to the Company or company, to Philips or the (Philips)Group or group, relate to Koninklijke Philips N.V. and its subsidiaries,as the context requires. Royal Philips refers to Koninklijke Philips N.V.

Philips Lighting/SignifyReferences to 'Signify' in this Annual Report relate to Philips' formerLighting segment (prior to deconsolidation as from the end ofNovember 2017 and when reported as discontinued operations),Philips Lighting N.V. (before or after such deconsolidation) or SignifyN.V. (after its renaming in May 2018), as the context requires.

Dutch Financial Markets Supervision ActThis document comprises regulated information within the meaningof the Dutch Financial Markets Supervision Act (Wet op het financieeltoezicht).

Statutory financial statements and management reportThe chapters Group financial statements and Company financialstatements contain the statutory financial statements of theCompany. The introduction to the chapter Group financial statementssets out which parts of this Annual Report form the Managementreport within the meaning of Section 2:391 of the Dutch Civil Code(and related Decrees).

Front cover: In 2018, Philips launched its Lumify with Reactsmobile tele-ultrasound solution in Kenya and Nigeria. This solutionis based on Philips’ Lumify portable ultrasound system andpowered by Innovative Imaging Technologies’ Reacts collaborativeplatform. It connects clinicians in real time by turning a compatiblesmart device into an integrated tele-ultrasound solution,combining two-way audio-visual calls with live ultrasoundstreaming.

Message from the CEO

Our transformation into a customer-centric solutions

company is gathering momentum, and with our focus on

innovation and continuous improvement we will unlock

further value.”Frans van Houten, CEO Royal Philips

Dear Stakeholder,In 2018 we made further progress on our journey to

extend our leadership as a health technology company.

In my frequent meetings with our hospital customers,

they tell me how they appreciate our strategy and are

keen to engage with us. They want to know more about

our innovative solutions – suites of systems, smart

devices, software and services – that can help them

deliver on the Quadruple Aim of improved patient

experience, better health outcomes, improved staff

experience, and lower cost of care. At the same time,

we see a real interest among consumers, healthcare

professionals, insurers and policy makers to help

people towards a healthier lifestyle and support

primary and secondary prevention of health challenges.

We see this as a validation of our strategy to drive

technology innovation along the health continuum and

disease pathways. As a result, we have seen growing

demand for our products and solutions, an increase in

long-term strategic partnerships, and substantial

growth of order intake.

With comparable sales growth of 5%*) and the Adjusted

EBITA*) margin improving by 100 basis points to 13.1% in

2018, we continue to deliver on our financial targets.

Having said that, our performance at segment level

shows we still have scope for further improvement. Our

Diagnosis & Treatment businesses had a very good year

in terms of sales growth, order intake growth and

improved earnings. At Connected Care & Health

Informatics, topline growth was flat and we continued

to make substantial investments in R&D, but the

expanding order book gives us confidence we are on

the right path to boost growth. Personal Health had a

slower year, in part due to internal execution challenges,

but we have taken decisive action. We are confident

about the road ahead, given the exciting array of

innovative new products and services we are bringing

onto the market. We also made a number of

complementary acquisitions in 2018 to strengthen

businesses across our portfolio.

In light of the continuous performance improvement

over the last three years and the strength of our balance

sheet, we propose to increase the dividend by 6%.

While the current geopolitical and macroeconomic

uncertainty is a challenge, we are making progress with

our ‘self-help’ initiatives to address headwinds such as

trade tariffs and emerging-market currency volatility, for

instance by adjusting our supply base, leveraging our

multi-modality factories, and extending our productivity

plans. Last year I wrote that making further progress on

product performance and quality was our highest

priority for 2018. We continue to invest substantially in

driving quality and compliance, and while there is still

work to do, we are starting to reap the benefits of our

improvement efforts, positioning us well for the future.

Transforming healthcare through innovationMeeting the growing demand and improving the

delivery of care while containing costs – that is the very

substantial challenge faced by health systems around

the world. It is driving the shift towards value-based

care, the consolidation of hospitals into Integrated

Delivery Networks, and the consumerization of

healthcare, as well as increasing the importance of

preventative care, early disease detection, and the

management of chronic disease outside the hospital.

Innovative health technology is helping to transform

healthcare, supporting improved outcomes as well as

productivity gains. The growing role of data, informatics

and Artificial Intelligence (AI) is having a major impact,

principally in the areas of precision diagnosis, clinical

decision support, care orchestration, telehealth and, not

least, in helping consumers to live a healthy life or cope

with chronic disease. In this market, which has attractive

growth rates and profit pools, we have strong positions

across the health continuum.

At Philips, we believe in integrated, connected care –

connecting consumers/patients, providers and payers

more effectively and leveraging informatics for better

outcomes at lower cost.

We enable clinicians to make precision diagnosis and

deliver personalized, minimally invasive therapies

through our digital imaging and clinical informatics

solutions. A shining example is our Azurion image-

guided therapy platform, which has secured a +300

basis points gain in market share and over 1,000 orders

since its launch in 2017.

We empower care professionals with healthcare

informatics solutions like our IntelliSpace Portal data

integration, visualization and analysis platform for

enhanced diagnostic confidence, and monitoring,

1

“


Annual Report 2018 3

predictive analytics solutions like our IntelliVue

Guardian with Early Warning Scoring, which enables

nursing staff to identify patients whose condition may

be deteriorating rapidly.

We enable people to recover, or live with chronic

disease, at home, thanks to solutions such as our new

Trilogy Evo home ventilation platform plus Care

Orchestrator cloud-based management system.

Likewise, we enable people to stay healthy and prevent

disease by means of connected products like our

Pregnancy+ parenting app and our Sonicare

DiamondClean electric toothbrush with Sonicare app,

which includes teledentistry and automatic brush-head

reordering services.

Joining up the dots from the ICU to the home, our

HealthSuite platforms support the seamless flow of

data needed to care for people in real time, wherever

they are.

Our innovation strength has been key to these

transformational solutions, and I am convinced there is

even better to come. We continue to maintain a high

level of investment in R&D, with a strong focus on

software and data science, and we now apply the

Quadruple Aim as a guide in all our development

choices, so that our innovations have maximum impact

and are fully scalable.

Delivering on our sustainability commitmentsReflecting our commitment to the United Nations’

Sustainable Development Goals, we continue to embed

sustainability deeper in the way we do business. With

its focus on access to care, circular economy and

climate action, our ‘Healthy people, Sustainable planet’

program is the vehicle that will enable us to deliver on

these commitments. In December 2018, Philips became

the world’s first health technology company to have its

CO2 emission targets approved by the Science Based

Targets initiative. Our sustainability performance

received renewed recognition when – in the first year

since our reclassification to the Health Care Equipment

& Services industry group – we took second place in the

2018 Dow Jones Sustainability Index. With health

systems the world over increasingly keen to reduce their

environmental footprint, we remain convinced that

sustainability can be a key competitive differentiator.

Roadmap to winWith our transformation into a customer-first solutions

company gathering pace, we have identified three main

drivers of continued growth and improved profitability:

Better serve customers and improve quality; Boost

growth in core business; Win with solutions along the

health continuum.

We believe that by engaging more deeply with our

customers and consumers, making it easier for them to

do business with us, developing more compelling

solutions, and acting with increased agility, speed and

efficiency, we will deliver greater value for all our

stakeholders.

This means making a big step up in quality, operational

excellence and productivity, and continuing to drive the

digital transformation in every area of our business. It

means capturing geographic growth opportunities and

pivoting to consultative customer partnerships and

business models that offer a much deeper relationship,

with recurring revenue streams. In that regard, our multi-

year ‘patient monitoring as a service’ agreement with

Miami's Jackson Health System and our medical

technology partnership agreements with Children’s

Health hospital in Dallas and Munich Municipal Hospital

are a blueprint for the way to go. It also means

continuing the shift from products to innovative value-

added, integrated solutions, supported by organic

growth and disciplined M&A.

Together, these measures will drive sustained

performance improvement as we pursue our overall

targets of 4-6% comparable sales growth*) and an

Adjusted EBITA*) margin improvement of 100 basis

points on average per year for the period 2017–2020.

We also expect to increase the annual free cash flow*)

to above EUR 1.5 billion by 2020.

In the end, culture is foundational to our strategic

ambitions. At Philips we place five key elements high on

our culture agenda: putting customers first, acting with

quality and integrity, teaming up to win, taking

ownership to deliver fast, and improving and inspiring

each other. These behaviors create a shared

understanding of how we all need to act in order to

delight the customer and drive market success.

In conclusionOn a personal note, I would like to thank our customers,

shareholders and other stakeholders for the confidence

they have shown in Philips over the past year. I would

also like to thank our employees for their hard work and

dedication, as we seek to combine day-to-day

performance with a profound, customer-focused

transformation.

Pleased with the progress we are making, yet conscious

that we still have a way to go, I strongly believe that the

combination of our sense of purpose, innovation

strength, culture of customer centricity and deep

commitment to continuous improvement is a potent

recipe for Philips to win and make the world healthier

and more sustainable.

Frans van Houten

Chief Executive Officer

Non-IFRS financial measure. For the definition andreconciliation of the most directly comparable IFRSmeasure, refer to Reconciliation of non-IFRS information,starting on page 56.

*)


4 Annual Report 2018

Board of Management andExecutive Committee

Koninklijke Philips N.V. is managed by an Executive

Committee which comprises the members of the Board

of Management and certain key officers from functions,

businesses and markets.

The Executive Committee operates under the

chairmanship of the Chief Executive Officer and shares

responsibility for the deployment of Philips’ strategy

and policies, and the achievement of its objectives and

results.

Under Dutch Law, the Board of Management is

accountable for the actions of the Executive Committee

and has ultimate responsibility for the management and

external reporting of Koninklijke Philips N.V. and is

answerable to shareholders at the Annual General

Meeting of Shareholders. Pursuant to the two-tier

corporate structure, the Board of Management is

accountable for its performance to a separate and

independent Supervisory Board.

The Rules of Procedure of the Board of Management

and Executive Committee are published on the

company’s website (www.philips.com/investor).

Frans van HoutenBorn 1960, Dutch

Chief Executive Officer (CEO)

Chairman of the Board of Management and the Executive

Committee since April 2011

For a full résumé, click here

Sophie BechuBorn 1960, French/American

Executive Vice President

Chief of Operations


Abhijit BhattacharyaBorn 1961, Indian


Member of the Board of Management since December 2015

Chief Financial Officer


Rob CascellaBorn 1954, American


Chief Business Leader of Diagnosis & Treatment


Marnix van GinnekenBorn 1973, Dutch/American


Member of the Board of Management since November 2017

Chief Legal Officer


Andy HoBorn 1961, Chinese


Market Leader of Philips Greater China


Roy JakobsBorn 1974, Dutch/German


Chief Business Leader of Personal Health


Henk Siebren de JongBorn 1964, Dutch


Chief of International Markets


Ronald de JongBorn 1967, Dutch


Chief Human Resources Officer, Chairman Philips Foundation


Carla KriwetBorn 1971, German


Chief Business Leader of Connected Care & Health Informatics


Vitor RochaBorn 1969, Brazilian/American


Market Leader of Philips North America


Jeroen TasBorn 1959, Dutch


Chief Innovation and Strategy Officer


This page reflects the composition of the ExecutiveCommittee as per December 31, 2018. As announced onJanuary 10, 2019, Philips has realigned the compositionof its reporting segments. Effective as of January 1, 2019,the Sleep & Respiratory Care business has shifted fromthe Personal Health segment to the renamed ConnectedCare segment and most of the Healthcare Informaticsbusiness have shifted from the renamed Connected Caresegment to the Diagnosis & Treatment segment. TheDiagnosis & Treatment segment is comprised of twoclusters: Precision Diagnosis led by Rob Cascella andImage-Guided Therapy led by Bert van Meurs. Mr. vanMeurs was also appointed as a member of the ExecutiveCommittee, effective as of January 1, 2019.

2

Board of Management and Executive Committee 2


http://www.philips.com/investor

http://www.philips.com/a-w/about/company/our-management/executive-committee/frans-van-houten.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/sophie-bechu.html

http://www.philips.com/a-w/about/company/our-management/executive-committee/abhijit-bhattacharya.html

http://www.philips.com/a-w/about/company/our-management/executive-committee/rob-cascella.html

http://www.philips.com/a-w/about/company/our-management/executive-committee/marnix-van-ginneken.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/andy-ho.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/roy-jakobs.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/henk-de-jong.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/ronald-de-jong.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/carla-kriwet.html

https://www.philips.com/a-w/about/company/our-management/executive-committee/vitor-rocha.html

http://www.philips.com/a-w/about/company/our-management/executive-committee/jeroen-tas.html

Strategy and Businesses

Healthcare challenges the world over

All around the world, trends such as growing, aging

populations, the increase in chronic illnesses and

changing reimbursement systems have created a need

for more efficient, effective and sustainable models of

care. At the same time, a growing focus on healthy living

and prevention means people are looking for new ways

to monitor and manage their health. In underserved

communities, meanwhile, access to care remains a

pressing issue.

A clear vision guiding our actions

Led by our vision of making the world healthier and

more sustainable through innovation, Philips is driving

the digital health revolution to unlock the value of

seamless care, helping people to look after their health

at every stage of life – with the goal of improving the

lives of 3 billion people a year by 2025.

This ambition demands an approach that addresses

both the social and ecological dimensions, as reflected

in our commitment to the United Nations’ Sustainable

Development Goals 3, 12 and 13:

• Ensure healthy lives and promote well-being for all

at all ages

• Ensure sustainable consumption and production

patterns

• Take urgent action to combat climate change and its

impacts

With its focus on access to care, circular economy and

climate action, our ‘Healthy people, Sustainable planet’

program, running from 2016-2020, is designed to help

us deliver on these commitments.

Innovating care

The desire for affordable and effective healthcare

delivery, without compromising the future availability of

natural resources, is driving the adoption of value-

based care. This will first require a shift from volume to

value, which Philips is driving through innovation, as

well as by transforming the way we engage with

customers and shape business models. Secondly, it will

require the balance to shift from acute and episodic

care more towards primary and secondary preventative

care in the community and home, improving overall

population health.

At Philips, we like to visualize healthcare as a continuum

since it puts people at the center and supports the idea

of care pathways. Believing that healthcare should be

seamless, efficient and effective, we ‘join up the dots’ for

our customers and consumers. Data and informatics will

play an ever-increasing role in helping people to live

healthily and/or cope with disease, and in enabling care

providers to meet people’s needs, deliver better

outcomes and improve productivity.

Applying our extensive consumer insights, we develop

locally relevant, connected solutions that support

healthier lifestyles, prevent or cure disease, and help

people to live well with chronic disease, also in the

home and community settings. In hospitals, we are

teaming up with healthcare providers in long-term

strategic partnerships to innovate and transform the

way care is delivered.

We listen closely to our customers’ needs and together

we co-create solutions – suites of systems, smart

devices, software and services that drive improvements

in patient outcomes, quality of care delivery and cost

productivity. Increasingly, we are partnering with our

customers in new business models where we take co-

responsibility for our customers’ key performance

indicators.

Transforming healthcare through innovation3.1

3

Strategy and Businesses 3


Integrated solutions addressing the Quadruple Aim

Philips sees significant value in integrated healthcare,

applying the power of predictive data analytics and

artificial intelligence at the point of care, while at the

same time optimizing care delivery across the health

continuum. This includes an increased focus on both

primary and secondary prevention and population

health management programs.

With our global reach, deep insights and innovative

strength, we are uniquely positioned in ‘the last yard’ to

consumers and care providers, delivering:

• connected products and services supporting the

health and well-being of people

• integrated modalities and clinical informatics to

deliver precision diagnosis

• real-time guidance and smart devices for minimally

invasive interventions

• connected products and services for chronic care.

Underpinning these solutions, and spanning the health

continuum, our connected care and health informatics

solutions enable us to:

• connect patients and providers for more effective,

coordinated, personalized care

• manage population health, leveraging real-time

patient data and clinical analytics.

By addressing healthcare as a ‘connected whole’ in this

way, we are able to unlock gains and efficiencies and

drive innovations that help our customers to deliver on

the Quadruple Aim of value-based healthcare:

improved patient experience, better health outcomes,

improved staff experience, and lower cost of care.

We are focusing on end-to-end pathways – at present

primarily cardiology, oncology, respiratory care, and

pregnancy and parenting – where we believe our

integrated approach can add even greater value.

The road ahead

As we continue on our health technology journey, the

drivers set out in the roadmap below are designed to

deliver higher levels of customer value and quality,

boost growth, and deliver winning solutions – all

coming together to improve performance and results.

Strategy and Businesses 3.1


Based on the International Integrated Reporting Council

framework, and with the Philips Business System at the heart of

our endeavors, we use six forms of capital to create value for our

stakeholders in the short, medium and long term.

How we create value3.2

Capital input

The capitals (resources and relationships) that Philips

draws upon for its business activities

Human• Employees 77,400, 120 nationalities, 38% female

• Philips University 1,200 new courses, 700,000

hours, 550,000 training completions

• 29,977 employees in growth geographies

• Focus on Inclusion & Diversity

Intellectual• Invested in R&D EUR 1.76 billion (Green Innovation

EUR 228 million)

• Employees in R&D 10,528 across the globe

including growth geographies

Financial• Equity EUR 12.1 billion

• Net debt*) EUR 3.1 billion

Manufacturing• Employees in production 30,925

• Manufacturing sites 39, cost of materials used

EUR 4.8 billion

• Total assets EUR 26.0 billion

• Capital expenditure EUR 422 million

Natural• Energy used in manufacturing 3,062 terajoules

• Water used 891,000 m3

• Recycled plastics in our products 1,840 tonnes

• 19 'zero waste to landfill' sites

• Pledge to take back all medical equipment by

2025

Social• Philips Foundation

• Stakeholder engagement

• New volunteering policy

Philips Business System

With its four interlocking elements, the Philips Business System (PBS) is

designed to help us deliver on our mission and vision – and to ensure

that success is repeatable. As we execute our strategy and invest in the

best opportunities, leverage our unique strengths and become

operationally excellent, we will be able to consistently deliver value to

our customers, consumers, shareholders, and other stakeholders.

Strategy - Where we investWe manage our portfolio with clearly defined strategies and allocate

resources to maximize value creation.

Capabilities, Assets and Positions - Our unique strengthsWe strengthen and leverage our core Capabilities, Assets and Positions

as they create differential value: deep customer insight, technology

innovation, our brand, global footprint, and our people.

Excellence - How we operateWe are a learning organization that applies common operating principles

and practices to deliver to our customers with excellence.

Path to Value - What we deliverWe define and execute business plans that deliver sustainable results

along a credible Path to Value.



HumanWe employ diverse and talented people and give

them the skills and training they need to ensure their

effectiveness and their personal development and

employability.

IntellectualWe apply our innovation and design expertise to

create new products and solutions that meet local

customer needs.

FinancialWe generate the funds we need through our

business operations and where appropriate raise

additional financing from capital providers.

ManufacturingWe apply Lean techniques to our manufacturing

processes to produce high-quality products. We

manage our supply chain in a responsible way.

NaturalWe are a responsible company and aim to minimize

the environmental impact of our supply chain, our

operations, and also our products and solutions.

SocialWe contribute to our customers and society through

our products and solutions, our tax payments, the

products and services we buy, and our investments in

local communities.

Value outcomes

The result of the application of the six forms of

capital to Philips’ business activities and processes as

shaped by the Philips Business System

Human• Employee Engagement Index 74% favorable

• Sales per employee EUR 234,121

Intellectual• New patent filings 1,120

• IP Royalties Adjusted EBITA*) EUR 272 million

• 141 design awards

Financial• Comparable sales growth*) 5%

• 64% Green Revenues

• Adjusted EBITA*) as a % of sales 13.1%

• Net cash provided by operating activities EUR 1.8

billion

• Net capital expenditures EUR 796 million

Manufacturing• EUR 18.1 billion revenues from products and

solutions sold

Natural• 12% revenues from circular propositions

• Net CO2 emissions down to 436 kilotonnes

• 257,000 tonnes (estimated) materials used to put

products on the market

• Waste down to 24.5 kilotonnes, of which 84%

recycled

Social• Brand value USD 12.1 billion (Interbrand)

• Partnerships with UNICEF, Red Cross, Amref and

Ashoka

Societal impact

The societal impact of Philips though its supply

chain, its operations, and its products and solutions

Human• Employee benefit expenses EUR 5,287 million

• Appointed 77% of our senior positions from

internal sources

• 21% of Leadership positions held by women

Intellectual• Around 40% of revenues from new products and

solutions introduced in the last three years

Financial• Market capitalization EUR 28.3 billion at year-end

• Long-term credit rating A- (Fitch), Baa1 (Moody's),

BBB+ (Standard & Poor's)

• Dividend EUR 738 million

Manufacturing• 90% electricity from renewable sources

• 240,000 employees impacted at suppliers

participating in the 'Beyond Auditing' program

Natural• Environmental impact Philips operations down to

EUR 175 million

• 1st health technology company to have its CO2

reductions assessed and approved by the Science

Based Targets initiative

Social• 1.54 billion Lives Improved (2.24 billion including

Signify), of which 175 million in underserved

communities

• Income tax paid EUR 301 million; the geographic

statutory income tax rate is 25% of the result

before tax

*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-

IFRS information, starting on page 56.



Our reporting structure in 2018Koninklijke Philips N.V. (Royal Philips) is the parent company of the Philips Group, headquartered in Amsterdam, the

Netherlands. The company is managed by the Executive Committee (comprising the Board of Management and certain

key officers) under the supervision of the Supervisory Board. The Executive Committee operates under the chairmanship

of the Chief Executive Officer and shares responsibility for the deployment of Philips’ strategy and policies, and the

achievement of its objectives and results.

In 2018, the reportable segments were Diagnosis & Treatment businesses, Connected Care & Health Informatics

businesses, and Personal Health businesses, each having been responsible for the management of its business

worldwide. Additionally, Philips identifies the reportable segment Other. The results in this report are based on the 2018

structure shown below:

To further align its businesses with customer needs,

Philips announced in January 2019 the realignment of

the three reportable segments – Diagnosis & Treatment,

Connected Care & Health Informatics and Personal

Health – effective January 1, 2019. The most notable

changes are the shift of the Sleep & Respiratory Care

business from the Personal Health segment to the

renamed Connected Care segment and the shift of the

Healthcare Informatics business (excluding the Tasy

EMR business and IntelliSpace Enterprise Edition) from

the Connected Care segment to the Diagnosis &

Treatment segment.

As of January 1, 2019, Philips’ reporting segments are

composed as follows:

Diagnosis & Treatment, which unites the businesses

related to the promise of precision diagnosis and

disease pathway selection, and the businesses related

to image-guided, minimally invasive treatments. This

segment comprises the Diagnostic Imaging, Ultrasound,

Healthcare Informatics and Image-Guided Therapy

businesses.

Connected Care, which focuses on patient care

solutions, advanced analytics and patient and workflow

optimization inside and outside the hospital, and aims

to unlock synergies from integrating and optimizing

patient care pathways and leveraging provider-payer-

patient business models. This segment comprises the

Monitoring & Analytics, Therapeutic Care, Population

Health Management, and Sleep & Respiratory Care

businesses (including the Home Respiratory Care

business).

Personal Health, which focuses on healthy living and

preventative care. This segment comprises the Personal

Care, Domestic Appliances, Oral Healthcare, and

Mother & Child Care businesses.

Our businesses3.3



The Chief Business Leader of the Diagnosis &

Treatment businesses segment, Rob Cascella, joined

Philips in April 2015. He has more than 30 years of

experience in the healthcare industry and has served on

the boards of several companies, including 10 years as

President and later CEO of Hologic Inc.

About Diagnosis & Treatment businesses in 2018

Our Diagnosis & Treatment businesses are foundational

to our health technology strategy, delivering on the

promise of precision medicine and least-invasive

treatment and therapy. We enable our customers to

realize the full potential of the Quadruple Aim – an

improved patient experience, better health outcomes,

an improved staff experience and lower cost of care –

by connecting people, data and technology. We are

focused on solutions (consisting of suites of systems,

smart devices, software and services) that are robust

and easy to use, while providing the most efficient path

to obtaining a precise diagnosis by integrating multiple

sources of information and combining the data to

create a comprehensive patient view. By bringing

together imaging morphology, pathology and

genomics, we are able to extract and analyze the

information needed to offer highly personalized care.

Informatics is central to everything we do: our KLAS-

awarded IntelliSpace Portal platform, for example,

provides artificial intelligence to make more consistent

decisions, as well as making it easier to share and

collaborate.

We continue to expand the applications for image-

guided treatment and therapy – where clinicians are

provided with the technology necessary to determine

the presence of disease, guide procedures, deliver

least-invasive treatment, and confirm effectiveness. Our

solutions enable patient-specific treatment planning

and selection, simplify complex procedures through

integrated real-time guidance, and provide clinically

proven treatment solutions. In 2018, Philips completed

the roll-out of its new Ingenia range of digital MR

systems. This was part of a broader renewal of the

company’s Diagnostic Imaging portfolio, 70% of which

has been introduced in the past two years. We provide

image guidance both in our proprietary products and by

partnering with radiation therapy companies like Elekta

and IBA to deliver real-time, precise cancer treatment.

In Image-Guided Therapy, iFR – a technology used to

assess coronary lesions that is unique to Philips –

continued to gain traction and was incorporated into

the European Society of Cardiology’s updated

guidelines for revascularization. We continued to

expand our portfolio in Image-Guided Therapy with the

acquisition of EPD Solutions, an innovator in image-

guided procedures for cardiac arrhythmias. We

announced a partnership with Innovative Imaging

Technologies to launch an industry-first integrated tele-

ultrasound solution based on Philips’ Lumify portable

ultrasound system. We also announced a partnership

agreement with innovative women’s health company

Hologic to offer care professionals integrated solutions

comprising diagnostic imaging modalities, advanced

informatics and services for the screening, diagnosis

and treatment of women.

Our Diagnosis & Treatment businesses’ value

proposition to customers is based on combining our

extensive clinical experience with our broad portfolio of

technologies – making us uniquely capable to provide

meaningful solutions that ultimately can improve the

lives of the patients we serve while lowering the cost of

care delivery for our customers.

Through our various businesses, Diagnosis & Treatment

is focused on growing market share and profitability by

leveraging:

• industry-leading tailored applications and sharper

imaging to drive growth in the core and adjacencies

in Ultrasound

• our unique suite of innovative procedural solutions

to support delivery of the right therapy in real-time

in Image-Guided Therapy

• intelligent, AI-enabled applications combined with

successful innovations in our systems platforms in

Diagnostic Imaging

• enhanced offerings in oncology, cardiology and

radiology, and expanding our solutions offering,

which comprises systems, smart devices, software

and services

Philips is one of the world’s leading health technology

companies (based on sales) along with Medtronic,

General Electric and Siemens Healthineers. The

competitive landscape in the healthcare industry is

evolving with the emergence of new market players.

In 2018, the Diagnosis & Treatment segment consisted

of the following areas of business:

• Diagnostic Imaging: Magnetic Resonance Imaging,

Computed Tomography, Advanced Molecular

Imaging, Diagnostic X-Ray, as well as integrated

clinical solutions, which include radiation oncology

treatment planning, disease-specific oncology

solutions and X-Ray dose management

• Image-Guided Therapy: interventional X-ray

systems, encompassing cardiology, radiology and

surgery, and interventional imaging and therapy

devices that include Intravascular Ultrasound (IVUS),

fractional flow reserve (FFR) and instantaneous

wave-free ratio (iFR), and atherectomy catheters

and drug-coated balloons for the treatment of

coronary artery and peripheral vascular disease

• Ultrasound: imaging products focused on diagnosis,

treatment planning and guidance for cardiology,

general imaging, obstetrics/gynecology, and point-

of-care applications, as well as proprietary software

capabilities to enable advanced diagnostics and

interventions.

Diagnosis & Treatment businesses3.3.1

Strategy and Businesses 3.3.1


Diagnosis & TreatmentTotal sales by business as a %2018

Revenue is predominantly earned through the sale of

products, leasing, customer services fees and software

license fees. For certain offerings, per study fees or

outcome-based fees are earned over the contract term.

Sales channels are a mix of a direct sales force,

especially in all the larger markets, combined with

online sales portal and distributors – this varies by

product, market and price segment. Sales are mostly

driven by a direct sales force that has an intimate

knowledge of the procedures for which our devices are

used, and visits our customer base frequently.

Sales at Philips’ Diagnosis & Treatment businesses are

generally higher in the second half of the year, largely

due to the timing of new product availability and

customer spending patterns.

At year-end 2018, Diagnosis & Treatment had 27,381

employees worldwide.

With regard to regulatory compliance and quality,

please refer to Our commitment to Quality, Regulatory

Compliance and Integrity, starting on page 19.

With regard to sourcing, please refer to Supplier

indicators, of the Annual Report 2018.

2018 business highlights

Continuing the renewal of its diagnostic imaging

portfolio, Philips launched the Ingenia Elition 3.0T and

Ingenia Ambition 1.5T MR systems. Both systems offer

superb image quality while performing exams up to

50% faster. An industry first, the Ingenia Ambition

enables imaging departments to perform more

productive, helium-free operations. The company also

received CFDA approval to market its advanced Vereos

Digital PET/CT in China.

The expansion of the Ultrasound business beyond its

core strength in cardiac ultrasound into attractive

adjacencies continues to be successful, driven by

innovations such as an advanced transducer optimized

for OB/GYN and General Imaging applications, and the

telehealth capabilities of its Lumify app-based

ultrasound solution.

As a leader in image-guided therapy, Philips launched

its EPIQ CVxi ultrasound system combined with the

latest version of its unique EchoNavigator software

specifically designed for minimally invasive structural

heart repairs, a fast-growing image-guided therapy

segment.

Philips’ Image-Guided Therapy Devices continued its

strong momentum, supported by a growing amount of

clinical data. Results from the DEFINE FLAIR trial

demonstrated that an iFR-guided strategy reduces

costs, improves patient comfort compared to an FFR-

guided strategy, and delivers consistent patient

outcomes. The adoption of Philips’ proprietary iFR

technology also reached a major milestone after its

inclusion in the European Society of Cardiology’s

updated guidelines for the assessment of coronary

artery lesions.

To further strengthen Philips’ businesses through

targeted acquisitions, the company acquired EPD

Solutions, an innovator that has developed a

breakthrough technology for image-guided treatments

for cardiac arrhythmia.

Philips launched an extension to the successful Azurion

image-guided therapy platform, setting a new standard

in the industry. Azurion with FlexArm includes

innovations for optimal visualization across the whole

patient in 2D and 3D to simplify and enhance a broad

range of procedures. Additionally, Philips announced

the enrolment of the first patient in the new Stellarex

ILLUMENATE Below-the-Knee (BTK) Investigational

Device Exemption (IDE) study in the US.

Dr. Carla Kriwet is Chief Business Leader of the

Connected Care & Health Informatics businesses

segment. Prior to assuming her current role in February

2017, Carla led Philips’ Patient Care & Monitoring

Solutions business group and was the Philips Market

Leader of Germany, Austria & Switzerland. Before this,

she held leadership positions with ABB Daimler-Benz,

The Boston Consulting Group, Linde AG and

Draegerwerk in Europe and Asia. Carla is a member of

the Supervisory Boards of Carl Zeiss AG and Save the

Children Germany.

About Connected Care & Health Informatics

businesses in 2018

Spanning the entire health continuum, the Connected

Care & Health Informatics businesses (as per the 2018

reporting structure) aim to improve patient outcomes,

increase efficiency and enhance patient and caregiver

satisfaction, driving towards value-based care. Our

solutions build on Philips’ strength in patient monitoring

and clinical informatics to improve clinical and

economic outcomes in all care settings, within and

outside the hospital.

Philips has a deep understanding of clinical care and

the patient experience that, when coupled with our

consultative approach, allows us to be an effective

partner for transformation, both across the enterprise

and at the level of the individual clinician. Philips

delivers services that take the burden off hospital staff

with optimized patient and data flow, a smooth

integration process, improved workflow, customized

training and improved accessibility across our

application landscape.

Connected Care & Health Informaticsbusinesses

3.3.2

Diagnostic Imaging

Image Guided Therapy

Ultrasound

47

32

21



This requires a secure common digital platform that

connects and aligns consumers, patients, payers and

healthcare providers. Philips’ platforms aggregate and

leverage information from clinical, personal and

historical data to support care providers in delivering

first-time-right diagnoses and treatment. Philips

continually builds out new capabilities within Philips

HealthSuite – a cloud-based connected health

ecosystem of devices, apps and digital tools – to

accomplish just that. For information on how Philips

manages cybersecurity risk, please refer to Operational

risks, of the Annual Report 2018.

Philips delivers personalized insights by applying

predictive analytics and artificial intelligence across our

solutions. As an example, we are able to support

healthcare professionals caring for elderly patients

living independently at home in making clinical

decisions and alerting medical teams to potential

issues. Our integrated and data-driven approach

promotes seamless patient care, helps identify risks and

needs of different groups within a population, and

provides clinical decision support.

In 2018, the Connected Care & Health Informatics

segment consisted of the following areas of business:

• Monitoring & Analytics is a solutions business

enabling smart decision-making for caregivers,

administrators and patients, to help control costs,

increase efficiency, and support better health.

Monitoring & Analytics solutions encompass:

integrated patient monitoring systems for all price

levels, wearable biosensors, advanced intelligence

platforms providing key insights and clinical decision

support to clinicians when and where they need it,

for real-time clinical information at the patient’s

bedside; patient analytics, including diagnostic ECG

data management for improved quality of cardiac

care; the eICU/Tele-ICU program. Monitoring &

Analytics also includes maintenance, clinical and IT

services as well as consumables.

• Therapeutic Care is expanding access to and quality

of respiratory care, resuscitation, and emergency

care solutions (including devices, services, and

digital/data solutions). Hospital Respiratory Care

(HRC) and Emergency Care & Resuscitation (ECR)

solutions are helping caregivers both inside and

outside the hospital, including cardiac resuscitation,

emergency care solutions, invasive and non-invasive

ventilators for acute and sub-acute hospital

environments and respiratory monitoring devices;

consumables across the patient monitoring and

therapeutic care businesses; customer service,

including clinical, IT, technical and remote customer

propositions. In 2018, Philips acquired Remote

Diagnostic Technologies (RDT), a UK-based leading

innovator of advanced solutions for the pre-hospital

market providing monitoring, cardiac therapy and

data management. RDT’s portfolio of comprehensive

connected emergency care solutions complements

and strengthens Philips’ current range of proven

monitoring and therapeutic products and solutions

to help emergency medical services, hospitals and

lay responders accelerate the delivery of care at the

scene.

• Healthcare Informatics: This business includes:

advanced healthcare IT, clinical and advanced

visualization and quantification informatics solutions

for radiology, cardiology and oncology departments;

Universal Data Management solutions, Picture

Archiving and Communication Systems (PACS) and

fully integrated Electronic Medical Record (EMR)

systems to support healthcare enterprises in

optimizing health system performance; advanced

clinical and hospital IT platforms which are

leveraged across Philips. Our IntelliSpace Portal

application platform is recognized as industry-

leading by KLAS. We use artificial intelligence at the

point of care to optimize the clinician experience,

help improve productivity and total cost of

ownership, and streamline patient experiences

across the clinical pathway. Proof of clinical and

economic outcomes, connectivity and cybersecurity

are key priorities of our engagement with our

customers. The acquisition of interoperability

software solutions provider Forcare provides Philips

with critical standards and interoperability expertise

to interconnect healthcare information systems,

share and exchange clinical data, and offer secure

and reliable access to digital health information for

medical staff and patients across multiple

organizations and care settings.

• Population Health Management: Our services and

solutions leverage data, analytics and actionable

workflow products for solutions to improve clinical

and financial results and increase patient

engagement, satisfaction and compliance. These

solutions include: technology-enabled monitoring

and intervention support outside the hospital

(telehealth, remote patient monitoring, personal

emergency response systems and care coordination)

to improve the experience of elderly people and

those living with chronic conditions; actionable

programs to predict risk (including medication and

care compliance, outreach, and fall prediction);

cloud-based solutions for health organizations to

manage population health. Leveraging our

acquisitions of Wellcentive, VitalHealth and

BlueWillow Systems, our solutions enable health

systems to analyze their patient population along

clinical and financial criteria, coordinate care outside

the hospital, and engage patients in their health.

They help drive quality improvement and business

transformation for those transitioning to value-

based care.



Connected Care & Health InformatIcsTotal sales by business as a %2018

Revenue is earned through the sale of products and

solutions, customer services fees and software license

fees. Where bundled offerings result in solutions for our

customers or offerings are based on number of people

being monitored, we see more usage-based earnings

models.

Sales channels include a mix of a direct salesforce,

partly paired with an online sales portal and distributors

(varying by product, market and price segment). Sales

are mostly driven by a direct salesforce with an intimate

knowledge of the procedures that use our integrated

solutions’ smart devices, systems, software and

services. Philips works with customers and partners to

co-create solutions, drive commercial innovation and

adapt to new models such as monitoring-as-a-service.

Sales at Philips’ Connected Care & Health Informatics

businesses are generally higher in the second half of

the year, largely due to customer spending patterns.

At year-end 2018, Connected Care & Health Informatics

had 10,517 employees worldwide.

With regard to regulatory compliance and the consent

decree agreed to by Philips and the US government, as

announced in Philips’ press release on October 11, 2017,

please refer to Consent Decree, starting on page 20.




Building on its strengths in healthcare informatics,

Philips entered into a multi-year partnership agreement

with St. Andrew’s Toowoomba Hospital in Australia for

the hospital-wide installation of Philips Tasy and an

integrated EMR system improving patient care and

safety, hospital management, supply and financials.

Philips will fully digitize the hospital’s entire care

management processes and enable anytime, anywhere

access to clinical analytics.

Philips partnered with Children’s Health in Dallas – one

of the top pediatric hospitals in the US – to improve

pediatric care with its patient monitoring and healthcare

informatics solutions.

Philips acquired Remote Diagnostic Technologies, a

leading provider of advanced monitoring, cardiac

therapy and data management solutions for the pre-

hospital market. RDT’s portfolio will complement

Philips’ Therapeutic Care business and strengthen its

leadership position in the estimated EUR 1.4 billion

resuscitation and emergency care market.

Highlighting Philips’ leadership in healthcare

informatics, IntelliSpace Portal, Philips’ advanced data

integration, visualization and analysis platform, was

named 2018 Category Leader in the Advanced

Visualization category in the 2018 Best in KLAS:

Software & Services report.

Philips and Miami's Jackson Health System – one of the

largest public health systems in the US – entered into

an agreement involving an industry-first ‘enterprise

patient monitoring as a service’ business model. This

will enable Jackson to standardize patient monitoring at

all acuity levels for each care setting across its network

for a per-patient fee.

Partnering with Showa University, Philips launched the

first tele-intensive care eICU program in Japan. This

delivers near real-time remote patient monitoring and

early intervention through predictive analytics and

advanced audio-visual technology. It has already been

successfully implemented in the US, the UK, Australia

and the Middle East.

To expand its leadership in patient monitoring solutions,

Philips launched FocusPoint, a web-based operational

performance management application for its patient

monitoring solutions. The application aggregates,

processes and stores statistical and alert information,

which are presented on a dashboard for optimal

management of the technology.

Philips partnered with the Dana-Farber Cancer Institute

to deploy best practices in cancer care. The

incorporation of the Institute’s Clinical Pathways in

Philips’ IntelliSpace Oncology Platform will help

oncologists reach the most appropriate cancer

treatments for patients, based on a unified view of the

patient across diagnostic modalities and the embedded

knowledge of both partners.

NewYork-Presbyterian Hospital selected Philips’

IntelliSpace Enterprise Edition as its in-hospital clinical

decision support platform to help address the

Quadruple Aim of improved patient experience, better

health outcomes, improved staff experience, and lower

cost of care across its sites.

Leveraging Philips’ expertise in remote monitoring

solutions, the company partnered with Dartmouth-

Hitchcock Health in the US to implement Philips’ eICU

technology at their hospital sites. Following the success

of similar programs across the globe, Dartmouth-

Hitchcock Health is the latest health system to

incorporate this telehealth model to improve critical

care support across multiple sites.

Roy Jakobs was appointed Chief Business Leader of the

Personal Health businesses effective October 1, 2018,

succeeding Egbert van Acht. Roy joined Philips in 2010

Personal Health businesses3.3.3

Monitoring & Analytics

Therapeutic Care

Healthcare Informatics

Population Health Management

61

17

15

7



as Chief Marketing Officer for Philips Lighting and in

2012 he became Market Leader for Philips Middle East

& Turkey. Between 2015 and 2018 he led the Domestic

Appliances business group.

About Personal Health businesses in 2018

Our Personal Health businesses (as per the 2018

reporting structure) play an important role on the health

continuum – in the healthy living, prevention and home

care stages – delivering integrated, connected and

personalized solutions that support healthier lifestyles

and those living with chronic disease.

Leveraging our deep consumer expertise and extensive

healthcare know-how, we enable people to live a

healthy life in a healthy home environment, and to

proactively manage their own health.

Supported by meaningful innovation and high-impact

marketing, we are focused on three key objectives:

• Growing our core businesses through geographical

expansion and increased penetration

• Unlocking business value through direct digital

consumer engagement, leading to higher brand

preference and recurring revenues

• Extending our core businesses with innovative

solutions and new business models to address

unmet consumer needs

Personal Health has many distinct product categories

and associated competitors, including Procter & Gamble

in Personal Care and Oral Healthcare, Groupe SEB in

Domestic Appliances, and, in 2018, ResMed in Sleep &

Respiratory Care.

In 2018, the Personal Health segment consisted of the

following areas of business:

• Health & Wellness: oral healthcare, mother and child

care

• Sleep & Respiratory Care: healthy sleeping,

respiratory care

• Personal Care: male grooming, beauty

• Domestic Appliances: food preparation, home care

Personal HealthTotal sales by business as a %2018

Through our Personal Health businesses, we offer a

broad range of solutions in various consumer price

segments, always aiming to offer and realize premium

value. We continue to rationalize our portfolio of locally

relevant innovations and increase its accessibility,

particularly in lower-tier cities in growth geographies.

We are well positioned to capture further growth in

online sales and continue to build our digital and e-

commerce capabilities.

We are leveraging connectivity to offer new business

models, partnering with other players in the health

ecosystem with the goal of extending opportunities for

people to live healthily, prevent or manage disease. We

are engaging consumers in their health journey in new

and impactful ways through social media and digital

innovation. For example, with the introduction of the

Philips Sonicare Solutions Teledentistry Service in 2018,

Philips’ Sonicare complete oral care solution has

become even more wide-reaching, enabling

professional, remote dental consultations. The Philips

Sonicare app acts as a ‘virtual hub’ for personal oral

healthcare, helping users to manage their complete oral

care on a daily basis and share brushing data with their

dental practitioners, putting personalized guidance and

advice at their fingertips.

The company’s wide portfolio of connected consumer

health platforms – such as our Sonicare dental

solutions and our Dream Family sleep care solution –

leverages Philips HealthSuite, a cloud-enabled

connected health ecosystem of devices, apps and

digital tools that enable personalized health and

continuous care.

The revenue model is mainly based on product sale at

the point in time the products are delivered to the end-

user or wholesalers or distributors. In Sleep &

Respiratory Care, revenue is generated both through

product sales and through rental models whereby

revenue is generated over time.

Under normal economic conditions, Philips’ Personal

Health businesses experience seasonality, with higher

sales around key national and international events and

holidays.

At year-end 2018, Personal Health employed 22,471

people worldwide.

With regard to regulatory compliance and quality,

please refer to Our commitment to Quality, Regulatory

Compliance and Integrity, starting on page 19.




In line with Philips’ focus on innovation, the company

launched the new Philips Sonicare ProtectiveClean

power toothbrush in North America, with further roll-out

around the world. This introduction will further boost

the profitable growth of the Oral Healthcare business.

Philips completely renewed the high-end range of its

leading male grooming portfolio with the introduction of

the Series 9000 Prestige shaver, which cuts facial hair

feeling as close as a wet blade, while being very gentle

Health & Wellness

Personal Care

Domestic Appliances

Sleep & Respiratory Care

20

25

31

24



on the skin. In 2018 we passed the all-time milestone of

1 billion shavers sold – a landmark achievement by our

Personal Care business.

Philips continued the roll-out of its OneBlade male

grooming innovation, adding another 10 countries, with

many more to follow, on the way to being a EUR 200

million business just a few years after its launch.

At IFA 2018, Philips introduced the High-Speed

Connected Blender, which can help people achieve

specific health goals, such as boosting their energy,

reducing their sugar and calorie intake, or increasing

their general well-being.

The app Pregnancy+ by Philips Avent is designed to

support a healthy full-term pregnancy plus a safe

delivery and gives expectant parents a comprehensive

guide through all stages of pregnancy.

Philips’ Sleep & Respiratory Care business continues to

gain traction for its market-leading home ventilation

offerings, such as the new Trilogy Evo ventilator

platform, which is the only portable life support solution

designed to stay with patients as they change care

environments. Integrated with Care Orchestrator, Philips’

sleep and respiratory care cloud-based management

system, Trilogy Evo will help to ease the burden of

managing chronic conditions such as Chronic

Obstructive Pulmonary Disease (COPD) by allowing

physicians, clinicians, and care providers to collaborate

and coordinate care from hospital to home by storing

their patient prescription and therapy information in a

single secure location.

Philips acquired NightBalance, a digital health scale-up

company based in the Netherlands that has developed

an innovative, easy-to-use device to treat positional

obstructive sleep apnea and positional snoring.

At the consumer electronics show CES 2018, Philips

introduced SmartSleep, the world’s first and only

clinically proven wearable solution for consumers to

improve deep sleep quality for people who do not get

enough sleep. SmartSleep joins Philips’ growing

portfolio of smart digital platforms and intelligent

solutions that give consumers data-driven insights into

their health and access to professional expertise and

advice.

Highlighting the success of Philips’ patient-centric

product designs in sleep care, Philips has sold more

than 10 million DreamWear CPAP masks and cushions

in just three years after the Dream Family platform

introduction, growing the DreamWear patient interface

sales faster than the market.

In our external reporting on Other we report on the

items Innovation & Strategy, IP Royalties, Central costs,

and other small items.

About Other

Innovation & Strategy

The Innovation & Strategy organization includes, among

others, the Chief Technology Office (CTO), Research,

HealthSuite Platforms, the Chief Medical Office, Product

Engineering, Design, Strategy, and Sustainability. Our

Innovation Hubs are in Eindhoven (Netherlands),

Cambridge (USA), Bangalore (India) and Shanghai

(China).

Innovation & Strategy, in collaboration with the

operating businesses and the markets, is responsible for

directing the company strategy, in line with our growth

and profitability ambitions.

The Innovation & Strategy function facilitates innovation

from ‘idea’ to ‘market’ (I2M) as co-creator and strategic

partner for the Philips businesses, markets and partners.

It does so through cooperation between research,

design, marketing, strategy and businesses in

interdisciplinary teams along the innovation chain, from

exploration and advanced development to first-of-a-

kind proposition development. In addition, it opens up

new value spaces beyond the direct scope of current

businesses through internal and external venturing,

manages the company-funded R&D portfolio, and

creates synergies for cross-segment initiatives and

integrated solutions.

Innovation & Strategy actively participates in Open

Innovation through relationships with academic, clinical,

industrial partners and start-ups, as well as via public-

private partnerships. It does so in order to improve

innovation speed, effectiveness and efficiency; to

capture and generate new ideas, and to leverage third-

party capabilities. This may include sharing the related

financial exposure and benefits.

Finally, Innovation & Strategy sets the agenda and

drives continuous improvement in the Philips product

and solution portfolio, the efficiency and effectiveness

of innovation, the creation and adoption of (digital)

platforms, and the uptake of high-impact technologies

such as data science, Artificial Intelligence and the

Internet of Things.

Chief Technology Office (CTO) and Product

Engineering organization

The CTO and Product Engineering organization is a

group of innovation teams that orchestrates innovation

across Philips’ businesses and markets, initiating game-

changing innovations that disrupt and cross boundaries

in health technology to address opportunities for better

clinical and economic outcomes and support the

associated transformation of Philips into a digital

solutions company. It encompasses the following

organizations:

• Innovation Management, responsible for end-to-

end innovation strategy and portfolio management,

integrated roadmaps linked to solutions, New

Business Creation Excellence, R&D competency

Other3.3.4



management, innovation performance management

and public funding programs.

• Philips Research, the co-creator and strategic

partner of the Philips businesses, markets and

complementary open innovation ecosystem

participants, driving front-end innovation and clinical

research at sites across the globe.

• Philips HealthWorks, responsible for accelerating

breakthrough innovation. HealthWorks incubates

early-stage ventures and engages with the external

start-up ecosystem.

• I2M Excellence is a global program driven centrally

to improve and harmonize Philips' capabilities,

processes and tools.

• The Chief Architect Office, responsible for defining,

steering and ensuring compliance and uptake of the

Philips HealthSuite architecture for configurable and

interoperable digital propositions.

• The Software and System Engineering Centers of

Excellence, driving adoption of industry best

practices in writing and maintaining application-level

software, modular and configurable system design

and model-based system engineering.

• Philips Innovation Services provides hardware and

embedded software development & engineering,

technology consulting, and low-volume specialized

manufacturing.

Philips HealthSuite

Philips HealthSuite constitutes our common digital

framework that connects consumers, patients,

healthcare providers, payers and partners in a cloud-

based connected health ecosystem of devices, apps

and tools.

• HealthSuite Digital Platform (HSDP) is the secure

Philips cloud and IoT (Internet of Things) solution

that forms the basis for our digital software stack,

with key functionalities including hosting,

authorization, connecting, storing, sharing, and

analysis of data and applications. New functionality

is continuously being added to the platform, like

building blocks for federated data management,

workflow management, and patient engagement.

• HealthSuite Premise is the recently launched

extension of HSDP to form a hybrid-cloud solution,

offering more flexibility in deployment and

implementation.

The Philips HealthSuite Platforms are managed and

orchestrated across Innovation & Strategy and all Philips

businesses. The majority of professional and consumer-

oriented digital propositions offered by Philips leverage

HealthSuite, and there is also a growing number of

third-party customers doing the same.

Innovation Hubs

To drive innovation effectiveness and efficiency, and to

enable locally relevant solution creation, we have

established four Innovation Hubs for the Philips Group:

Eindhoven (Netherlands), Cambridge (US), Bangalore

(India) and Shanghai (China). Each Hub includes a

combination of technical, design and clinical

capabilities, representing Group Innovation & Strategy,

selected R&D groups from our businesses, market

innovation teams and other functions. These Hubs,

where most of the Group Innovation & Strategy

organization is concentrated, complement the

business-specific innovation capabilities of our R&D

centers that are integrated in our global business sites.

• Philips Innovation Center Eindhoven is Philips’

largest cross-functional Innovation Hub worldwide,

hosting the global headquarters of many of our

innovation organizations as well as many

collaboration partnerships. Many of the company’s

core research programs are run from here.

• Philips Innovation Center Cambridge, MA is focused

on Data Science and AI, among other things. Being

within close proximity to the MIT campus and clinical

collaboration partners allows researchers to

collaborate easily on jointly defined research

programs, validate clinical relevance, as well as to

participate in Open Innovation projects.

• Philips Innovation Center Bangalore hosts activities

from most of our operating businesses, Research,

Design, Intellectual Property & Standards, and IT.

This is our largest software-focused site, with over

3,500 engineers. The Center works with growth

geographies to build market-specific solutions, and

several businesses have also located business

organizations focusing on growth geographies at the

site.

• Philips Innovation Center Shanghai combines digital

innovation, research and solutions development for

the China market, while several of its locally relevant

innovations are also finding their way globally.

Alongside the hubs, where most of the central

Innovation & Strategy organization is concentrated

together with selected business R&D and market

innovation teams, we continue to have significant, more

focused innovation capabilities integrated into key

technology centers at our other global business sites.

Chief Medical Office

The Chief Medical Office is responsible for clinical

innovation and strategy, hospital economics, clinical

evidence and market access, as well as medical thought

leadership, with a focus on the Quadruple Aim and

value-based care. This includes engaging with

stakeholders across the health continuum to extend

Philips’ leadership in health technology and acting on

new value-based reimbursement models that benefit

the patient and care provider.



Leveraging the knowledge and expertise of the medical

professional community across Philips, the Chief

Medical Office includes many healthcare professionals

who practice in the world’s leading health systems.

Supporting the company’s objectives across the health

continuum, its activities include strategic guidance built

on clinical and scientific knowledge, fostering peer-to-

peer relationships in relevant medical communities,

liaising with medical regulatory bodies, and supporting

clinical and marketing evidence development.

Philips Design

Philips Design is the global design function for the

company, ensuring that the user experiences of our

innovations are meaningful, people-focused and locally

relevant. Design is also responsible for ensuring that the

Philips brand experience is differentiating, consistently

expressed, and drives customer preference.

Philips Design partners with stakeholders across the

organization to develop methodologies and enablers to

define value propositions, implement data-enabled

design tools and processes to create meaning from

data, and leverage Co-create methodologies to define

solutions. Our Co-create approach facilitates

collaboration with customers and patients to create

solutions that are tailored specifically to the challenges

facing them, as local circumstances and workflows are

key ingredients in the successful implementation of

solutions.

To ensure that we connect end users along the health

continuum we create a consistent experience across all

touchpoints. A key enabler for this is a consistent and

differentiating design language that applies to software,

hardware and services across our operating businesses.

In recognition of our continued excellence, Philips

Design received 141 awards in 2018.

Emerging Businesses

Emerging Businesses is a business group in emerging

spaces with a mission to bring intelligence to diagnosis

in pathology and neurology and to guide therapy. It

includes:

• Digital & Computational Pathology digitizes

diagnosis in anatomic pathology and uses Artificial

Intelligence to aid detection of disease and

progression to reduce inter-observer variability and

improve outcomes. Philips is the global market

leader in routine primary diagnosis using Digital

Pathology and the only company in the market to

have an FDA-approved solution for primary

diagnosis.

• Philips Neuro is focused on a mission to advance

neuroscience for better care. The business provides

an integrated neurology solution comprising Full

Head HD EEG with diagnostic imaging to map brain

activity and anatomy for a wide range of neuro

disorders, and uses machine learning to improve

diagnosis of various neuro disorders.

IP Royalties

Philips Intellectual Property & Standards (IP&S)

proactively pursues the creation of new Intellectual

Property (IP) in close co-operation with Philips’

operating businesses and Innovation & Strategy. IP&S is

a leading industrial IP organization providing world-

class IP solutions to Philips’ businesses to support their

growth, competitiveness and profitability.

Royal Philips’ total IP portfolio currently consists of

65,000 patent rights, 39,400 trademarks, 61,300 design

rights and 3,200 domain names. Philips filed 1,120 new

patents in 2018, with a strong focus on the growth areas

in health technology services and solutions.

IP&S participates in the setting of standards to create

new business opportunities for the Philips operating

businesses. A substantial portion of revenue and costs

is allocated to the operating businesses. License fees

and royalties are earned on the basis of usage, or fixed

fees over the term of the contract.

Philips believes its business as a whole is not materially

dependent on any particular patent or license, or any

particular group of patents and licenses.

Central costs

We recharge the directly attributable part of the central

costs to the business segments. The remaining part

includes the Executive Committee, Brand Management

and Sustainability, as well as functional services such as

IT and Real Estate.

Real estate

Philips is present in more than 70 countries globally and

has its corporate headquarters located in Amsterdam,

the Netherlands. Our real estate sites are well spread

around the globe, with key manufacturing and R&D

sites in the Americas, Asia and Europe. In 2018, we

reduced our footprint in India (Chennai, Pune),

Indonesia (Jakarta) and China. We also rightsized and

upgraded our Milan, Madrid, Zurich and Herrsching sites

in Europe and expanded our global business solutions

in India, Poland and the United States. To attract R&D

talent, we invested in R&D locations such as Bangalore,

Shanghai, Eindhoven and others. We also made

strategic investments in manufacturing sites in the

Americas and Asia. The vast majority of our locations

consist of leased property, and we manage these

closely to keep the overall vacancy rates of our property

below 5% and to ensure the right level of space

efficiency and flexibility to follow our business dynamic.

The net book value of our land and buildings at

December 31, 2018, represented EUR 621 million;

construction in progress represented EUR 46 million.

Our current facilities are adequate to meet the

requirements of our present and foreseeable future

operations.



Our business success depends on the quality of our

products, services and solutions and compliance with

many regulations and standards. We continue on our

transformation journey to have customer-focused

global processes, procedures, standards and a quality

mindset to help us maintain the highest possible level

of quality in all our products.

For Philips, as a business with a significant global

footprint, compliance with evolving regulations and

standards including data privacy and cybersecurity has

resulted, and may continue to result, in increased costs,

new compliance challenges, and the threat of increased

regulatory enforcement activity. Our business relies on

the secure electronic transmission, storage and hosting

of sensitive information, including personal information,

protected health information, financial information,

intellectual property and other sensitive information

related to our customers and workforce. For information

on how Philips manages cybersecurity risk, please refer

to Operational risks, of the Annual Report 2018.

Philips actively maintains FDA/ISO Quality Systems

globally that establish standards for its product design,

manufacturing, and distribution processes. Our

businesses are subject to compliance with regulatory

product approval and quality system requirements in

every market we serve, and to specific requirements of

local and national regulatory authorities including the

US FDA, the NMPA in China and comparable agencies

in other countries, as well as the European Union’s

Waste from Electrical and Electronic Equipment

(WEEE), Restriction of Hazardous Substances (RoHS)

and Registration, Evaluation, Authorization and

Restriction of Chemicals (REACH), Energy-using

Products (EuP) and Product Safety Regulations. We

have a growing portfolio of medically regulated

products in our Health & Wellness, Personal Care and

Sleep & Respiratory Care businesses. Through our

growing oral healthcare, mother and child care and

beauty product portfolio the range of applicable

regulations has been extended to include requirements

relating to cosmetics and, on a very small scale,

pharmaceuticals.

In almost all cases, new products that we introduce are

subject to a regulatory approval process (e.g. pre-

market notification – the 510(k) process – or pre-market

approval (PMA) for FDA approvals in the USA, the CE

Mark in the European Union). Failing to comply with the

regulatory requirements can have severe legal

consequences. The number and diversity of regulatory

bodies in the various markets we operate in globally

adds complexity and time to product introductions.

In the EU, a new Medical Device Regulation (EU MDR)

was published in 2017, which will impose significant

additional pre-market and post-market requirements.

Since the announcement of the EU MDR, Philips has

been developing a comprehensive strategic plan to

ensure compliance with the MDR requirements that will

come into effect by May 2020. The company has

engaged in a top-to-bottom review of our full portfolio

of products and solutions that fall under the mandate,

and has developed a robust and detailed framework for

a seamless transition by the time the Medical Device

Regulation is operative. We will make a one-time EU

MDR investment, estimated at EUR 45 million, in 2019,

in addition to ongoing compliance costs for the new

regulations of around EUR 25 million per year. We

believe the global regulatory environment will continue

to evolve, which could impact the cost, the time needed

to approve, and ultimately, our ability to maintain

existing approvals or obtain future approvals for our

products.

Philips is committed to delivering the highest quality

products, services and solutions compliant to all

applicable laws and standards. We are investing

substantially in driving quality into our culture, reaping

the benefits of our improvement efforts addressing the

past and positioning for the future. We will continue to

raise the performance bar. Quality is embedded in the

evaluation of all senior management. With consistency

of purpose, top-down accountability, standardization,

leveraging continuous improvement we aim to drive

greater speed in the adoption of a quality mindset

throughout the enterprise.

While pursuing our business objectives, we aim to be a

responsible partner in society, acting with integrity

towards our employees, customers, business partners

and shareholders, as well as the wider community in

which we operate. The Philips General Business

Principles (GBP) incorporate and represent the

fundamental principles by which all Philips businesses

and employees around the globe must abide. They set

the minimum standard for business conduct, both for

individual employees and for the company and our

subsidiaries. More information on the Philips GBP can

be found in Our approach to risk management, of the

Annual Report 2018. The results of the monitoring

measures in place are given in General Business

Principles, of the Annual Report 2018.

Our commitment to Quality,Regulatory Compliance and Integrity

3.4



In October 2017, Philips North America LLC reached

agreement on a consent decree with the US

Department of Justice, representing the Food and Drug

Administration (FDA), related to compliance with

current good manufacturing practice requirements

arising from past inspections in and before 2015,

focusing primarily on Philips’ Emergency Care &

Resuscitation (ECR) business operations in Andover

(Massachusetts) and Bothell (Washington). The decree

also provides for increased scrutiny, for a period of

years, of the compliance of the other Monitoring &

Analytics businesses at these facilities with the Quality

System Regulation.

Under the decree, Philips has suspended the

manufacture and distribution, for the US market, of

external defibrillators manufactured at these facilities,

subject to certain exceptions, until FDA certifies through

inspection the facilities’ compliance with the Quality

System Regulation and other requirements of the

decree. The decree allows Philips to continue the

manufacture and distribution of certain automated

external defibrillator (AED) models and Philips can

continue to service ECR devices and provide

consumables and the relevant accessories, to ensure

uninterrupted availability of these highly reliable life-

saving devices in the US. Philips continues to be able to

export ECR devices under certain conditions. Philips is

continuing to manufacture and distribute the devices of

businesses other than ECR at these facilities.

Substantial progress has been made in our compliance

efforts. However, we cannot predict the outcome of this

matter, and the consent decree authorizes the FDA, in

the event of any violations in the future, to order us to

cease manufacturing and distributing ECR devices,

recall products, pay liquidated damages and take other

actions. We also cannot currently predict whether

additional monetary investment will be incurred to

resolve this matter or the matter’s ultimate impact on

our business.

Consent Decree3.4.1



Financial performance

2018 was a year of solid progress, as we increased sales to

EUR 18.1 billion, representing 5% comparable sales growth,

improved our operating profitability margin by 100 basis

points, delivered a strong operating cash flow of EUR 1.8

billion, and increased income from continuing operations to

EUR 1.3 billion.”Abhijit Bhattacharya, CFO Royal Philips

Management summary

• Sales rose to EUR 18.1 billion, a nominal increase of

2%, which reflected 5% nominal growth in the

Diagnosis & Treatment businesses, a 3% sales

decline in the Connected Care & Health Informatics

businesses and a 1% decline in the Personal Health

businesses. On a comparable basis*) the 5% growth

reflected 7% growth in the Diagnosis & Treatment

businesses, higher IP royalty income, 3% growth in

the Personal Health businesses, and flat sales in the

Connected Care & Health Informatics businesses.

• Net income amounted to EUR 1.1 billion, a decrease

of EUR 773 million compared to 2017, mainly due to

the deconsolidation of Signify (formerly Philips

Lighting). Net income is not allocated to segments as

certain income and expense line items are

monitored on a centralized basis.

• Adjusted EBITA*) totaled EUR 2.4 billion, or 13.1% of

sales, an increase of EUR 213 million, or 100 basis

points as a % of sales, compared to 2017. The

productivity programs delivered annual savings of

approximately EUR 466 million, ahead of the

targeted savings of EUR 400 million, and included

approximately EUR 269 million procurement

savings, led by the Design for Excellence (DfX)

program, and EUR 197 million savings from other

productivity programs.

• Net cash provided by operating activities amounted

to EUR 1.8 billion, a decrease of EUR 90 million

compared to 2017, as higher earnings were offset by

higher working capital outflows. Free cash flow*)

amounted to EUR 984 million, which includes a EUR

176 million outflow related to pension liability de-

risking and an early bond redemption.

• On June 28, 2017, Philips announced a EUR 1.5

billion share buyback program for capital reduction

purposes. Under that program, which was initiated in

the third quarter of 2017, Philips repurchased shares

in the open market and entered into a number of

forward transactions, some of which are to be

settled in Q2 2019. As the program was initiated for

capital reduction purposes, Philips intends to cancel

all of the shares acquired under the program.

• On January 29, 2019, Philips announced a new

share buyback program for an amount of up to EUR

1.5 billion. Philips started the program in the first

quarter of 2019 and expects to complete it within

two years. As the program was initiated for capital

reduction purposes, Philips intends to cancel all

shares acquired under the program. The program will

be executed by an intermediary to allow for

purchases in the open market during both open and

closed periods.

• As of December 31, 2018, Philips’ shareholding in

Signify (formerly Philips Lighting) was 16.5% of

Signify's issued share capital. For further information,

refer to Sell-down Signify shares (former Philips

Lighting), starting on page 38.

The year 2017

• Sales rose to EUR 17.8 billion, a nominal increase of

2%, which reflected 3% nominal growth in the

Personal Health businesses and Diagnosis &

Treatment businesses and flat year-on-year sales in

the Connected Care & Health Informatics businesses.

On a comparable basis*) the 4% growth was driven

by 6% growth in the Personal Health businesses and

3% growth in the Connected Care & Health

Informatics and Diagnosis & Treatment businesses.

• In the course of 2017, Philips’ shareholding in Philips

Lighting was decreased to 29.01% of Philips

Lighting’s issued share capital through multiple

Performance review4.1

4

“

Financial performance 4


accelerated bookbuild offerings to institutional

investors. As a result, Philips no longer has control

over Philips Lighting and has ceased to consolidate

Philips Lighting as from the end of November 2017.

With these sell-down transactions, Philips reached

an important milestone in pivoting Philips into a

focused health technology company. For further

information, refer to Philips Lighting sell-down,

starting on page 38.

• Net income amounted to EUR 1.9 billion and

increased by EUR 379 million compared to 2016,

driven by improvements in operational performance,

lower net financial expenses and higher

discontinued operations results, partly offset by

higher restructuring and acquisition-related charges

and higher income taxes, which included a tax

charge of EUR 171 million due to the US Tax Cuts and

Jobs Act. Net income is not allocated to segments as

certain income and expense line items are

monitored on a centralized basis.

• Adjusted EBITA*) totaled EUR 2.2 billion, or 12.1% of

sales, an increase of EUR 232 million, or 110 basis

points as a % of sales, compared to 2016. The

productivity programs delivered annual savings of

approximately EUR 483 million, ahead of the

targeted savings of EUR 400 million, and included

approximately EUR 260 million procurement

savings, led by the Design for Excellence (DfX)

program, and EUR 223 million savings from other

productivity programs.

• Net cash provided by operating activities amounted

to EUR 1.9 billion and increased by EUR 700 million

compared to 2016. Free cash flow*) amounted to

EUR 1.2 billion and increased by EUR 756 million

compared to 2016. The increase was mainly driven

by higher earnings and the dividend related to the

retained interest in the combined businesses of

Lumileds and Automotive, lower outflows related to

pension de-risking settlements, as well as the cash

outflows in Q4 2016 of EUR 280 million related to

the Masimo agreements. For further information on

the Masimo agreements, refer to Provisions note,

starting on page 0.

Philips GroupKey data in millions of EUR unless otherwise stated2016 - 2018

1) Non-IFRS financial measure. For the definition and reconciliationof the most directly comparable IFRS measure, refer toReconciliation of non-IFRS information, starting on page 56.2) Shareholders in this table refers to shareholders of KoninklijkePhilips N.V.3) The presentation of 2017 information has been updatedcompared to the information previously published to adjust forelements of Net income that were attributable to discontinuedoperations.

Nominal sales growth 4% 2% 2%

Comparable sales growth 1) 5% 4% 5%

Income from operations 1,464 1,517 1,719

as a % of sales 8.4% 8.5% 9.5%

Financial expenses, net (442) (137) (213)

Investments in associates, net of

income taxes 11 (4) (2)

Income tax expense (203) (349) (193)

Income from continuing operations 831 1,028 1,310

Discontinued operations, net of

income taxes 660 843 (213)

Net income 1,491 1,870 1,097

Adjusted EBITA 1) 1,921 2,153 2,366

as a % of sales 11.0% 12.1% 13.1%

Income from continuing operations

attributable to shareholders 2) per

common share (in EUR) - diluted 3) 0.89 1.08 1.39

Adjusted income from continuing

operations attributable to

shareholders 2) per common share (in

EUR) - diluted 1) 1.24 1.54 1.76


*)

2016 2017 2018

Sales 17,422 17,780 18,121

Financial performance 4.1


Sales

The composition of sales growth in percentage terms in

2018, compared to 2017 and 2016, is presented in the

table below.

Philips GroupSales in millions of EUR unless otherwise stated2016 - 2018

1) Non-IFRS financial measure. For the definition and reconciliationof the most directly comparable IFRS measure, refer toReconciliation of non-IFRS information, starting on page 56.

Group sales amounted to EUR 18,121 million in 2018, an

increase of 2% on a nominal basis. Adjusted for a 2.8%

negative currency effect and consolidation impact,

comparable sales*) were 5% above 2017.

Group sales amounted to EUR 17,780 million in 2017 and

increased 2% on a nominal basis. Adjusted for a 1.8%


comparable sales*) were 4% above 2016.

Diagnosis & Treatment businesses

In 2018, sales amounted to EUR 7,245 million, 5% higher

than in 2017 on a nominal basis. Excluding a 1.7%


comparable sales*) increased by 7%, reflecting double-

digit growth in Image-Guided Therapy and Ultrasound

and low-single-digit growth in Diagnostic Imaging.

In 2017, sales amounted to EUR 6,891 million, 3% higher

than in 2016 on a nominal basis. Excluding a 1%


comparable sales*) increased by 3%, driven by mid-

single-digit growth in Ultrasound and Image-Guided

Therapy and low-single-digit growth in Diagnostic

Imaging.


In 2018, sales amounted to EUR 3,084 million, a

decrease of 2% on a nominal basis compared to 2017.

Excluding a 3% negative currency effect and

consolidation impact, comparable sales*) remained flat,

reflecting low-single-digit growth in Healthcare

Informatics while Monitoring & Analytics and

Therapeutic Care remained flat year-on-year.

Therapeutic Care includes a negative impact from the

consent decree of a 135 basis points.

In 2017, sales amounted to EUR 3,163 million and

remained flat compared with 2016 on a nominal basis.

The 3% increase on a comparable basis*) was driven by

mid-single-digit growth in Patient Care & Monitoring

Solutions and low-single-digit growth in Healthcare

Informatics.

Personal Health businesses

In 2018, sales amounted to EUR 7,228 million, a nominal

decrease of 1% compared to 2017. Excluding a 4%


comparable sales*) were 3% higher year-on-year,

reflecting high-single-digit growth in Sleep &

Respiratory Care and low-single-digit growth in

Personal Care and Domestic Appliances, while Health &

Wellness remained flat year-on-year.

In 2017, sales amounted to EUR 7,310 million, a nominal

increase of 3% compared to 2016. Excluding a 3%

negative currency impact, comparable sales*) were 6%

higher year-on-year, driven by high-single-digit growth

in Health & Wellness and mid-single-digit growth in

Sleep & Respiratory Care, Domestic Appliances and

Personal Care.

Other

In 2018, sales amounted to EUR 564 million, compared

to EUR 416 million in 2017. The increase was mainly due

to higher IP royalty income and revenue from

innovation. Following deconsolidation at the end of

November 2017, license income from Signify (formerly

Philips Lighting) is reported as third-party sales.

In 2017, sales amounted to EUR 416 million compared to

EUR 479 million in 2016, mainly due to lower royalty

income.

Performance per geographic clusterPhilips GroupSales by geographic area in millions of EUR unless otherwise stated2016 - 2018


Sales in mature geographies in 2018 were EUR 303

million higher than in 2017, or 3% higher on both a

nominal and a comparable basis*). Sales in Western

Europe were 5% higher year-on-year on a nominal

Results of operations4.1.1

Nominal sales growth (%) 3.1 3.1 5.1

Comparable sales growth (%) 1) 3.6 3.5 6.8

Connected Care & Health

Informatics

businesses 3,158 3,163 3,084

Nominal sales growth (%) 4.5 0.2 (2.5)


Personal Health businesses 7,099 7,310 7,228

Nominal sales growth (%) 5.2 3.0 (1.1)


Other 479 416 564

Philips Group 17,422 17,780 18,121



North America 6,279 6,409 6,338

Other mature geographies 1,792 1,707 1,892

Total mature geographies 11,826 11,918 12,221



Growth geographies 5,596 5,862 5,901



Philips Group 17,422 17,780 18,121

2016 2017 2018

Diagnosis & Treatment businesses 6,686 6,891 7,245

2016 2017 2018

Western Europe 3,756 3,802 3,990

Financial performance 4.1.1


basis and 3% higher on a comparable basis*).

Comparable sales*) in Western Europe reflected high-

single-digit growth in the Connected Care & Health

Informatics businesses, mid-single-digit growth in the

Diagnosis & Treatment businesses, and a low-single

digit decline in the Personal Health businesses. Sales in

North America decreased by EUR 72 million, or 1% on a

nominal basis, and increased 1% on a comparable

basis*). Comparable sales*) in North America reflected

mid-single-digit growth in the Diagnosis & Treatment

businesses, flat sales in the Personal Health businesses,

and a mid-single-digit decline in the Connected Care &

Health Informatics businesses. Sales in other mature

geographies increased by 11% on a nominal basis and

by 14% on a comparable basis*). Comparable sales* in

other mature geographies showed high-single-digit

growth in the Personal Health businesses and mid-

single-digit growth in the Diagnosis & Treatment

businesses and Connected Care & Health Informatics

businesses.

Sales in mature geographies were EUR 92 million higher

in 2017 than in 2016, or 1% higher on a nominal basis

and 2% higher on a comparable basis*). Sales in

Western Europe were 1% higher than in 2016 on a

nominal basis and 3% higher on a comparable basis*).

Comparable sales*) in Western Europe reflected mid-

single-digit growth in the Connected Care & Health

Informatics businesses and Personal Health businesses,

and flat year-on-year sales in the Diagnosis &

Treatment businesses. Sales in North America increased

by EUR 130 million, or 2% on a nominal basis and 3% on

a comparable basis*). Comparable sales*) in North

America reflected mid-single-digit growth in the

Connected Care & Health Informatics businesses and

low-single-digit growth in the Personal Health

businesses and Diagnosis & Treatment businesses.

Sales in other mature geographies decreased by 5% on

a nominal basis and by 2% on a comparable basis*).

Comparable sales*) in other mature geographies

showed low-single-digit growth in the Diagnosis &

Treatment businesses, while the Connected Care &

Health Informatics businesses and Personal Health

businesses recorded a low-single-digit decline.

Sales in growth geographies in 2018 were EUR 39

million higher than in 2017, an increase of 1% on a

nominal basis. The 8% increase on a comparable basis*)

reflected double-digit growth in the Diagnosis &

Treatment businesses and high-single-digit growth in

the Connected Care & Health Informatics businesses

and Personal Health businesses. The increase was

driven by double-digit growth in Latin America and

mid-single-digit growth in China.

In growth geographies, sales were EUR 266 million

higher in 2017 than in 2016 and increased 5% on a

nominal basis. The 8% increase on a comparable basis*)

reflected double-digit growth in the Personal Health

businesses, high-single-digit growth in the Diagnosis &

Treatment businesses and low-single-digit growth in

the Connected Care & Health Informatics businesses.

The increase was driven by double-digit growth in

Middle East & Turkey and high-single-digit growth in

China, Latin America and Central & Eastern Europe.

Diagnosis & Treatment businessesPhilips GroupDiagnosis & Treatment businesses sales in millions of EUR unlessotherwise stated2016 - 2018


From a geographic perspective, nominal sales in growth

geographies increased by 4% in 2018, while comparable

sales*) showed double-digit growth, driven by double-

digit growth in China and Latin America. Sales in mature

geographies increased by 6% on a nominal basis, while

comparable sales*) showed mid-single-digit growth,

reflecting mid-single-digit growth in North America,

Western Europe and other mature geographies.

From a geographic perspective, nominal sales increased

by 5% in growth geographies in 2017 and on

comparable sales*) showed high-single-digit growth,

mainly driven by double-digit growth in China and

high-single-digit growth in Latin America. Sales in

mature geographies showed a 2% increase on a

nominal basis and on a comparable basis*) recorded

low-single-digit-growth, reflecting low-single-digit

growth in North America and other mature geographies,

while sales in Western Europe were flat year-on-year.

Connected Care & Health Informatics businessesPhilips GroupConnected care & Health Informatics in millions of EUR unlessotherwise stated2016 - 2018


From a geographic perspective, sales on a nominal

basis remained flat in growth geographies in 2018 and

on a comparable basis*) showed high-single-digit

growth, reflecting double-digit growth in Latin America

and low-single-digit growth in China. Sales in mature

geographies decreased by 3% on a nominal basis and

showed a low-single-digit decline on a comparable

North America 2,340 2,449 2,592

Other mature geographies 763 751 775



Sales 6,686 6,891 7,245

Nominal sales growth (%) 3% 3% 5%

Comparable sales growth

(%) 1) 4% 3% 7%

North America 1,906 1,925 1,774



Growth geographies 469 458 460

Sales 3,158 3,163 3,084

Nominal sales growth (%) 5% 0% (2)%


(%) 1) 4% 3% 0%

2016 2017 2018


2016 2017 2018

Western Europe 472 485 554



basis*), reflecting high-single-digit growth in Western

Europe and mid-single-digit growth in other mature

geographies, offset by a mid-single-digit decline in

North America.

From a geographic perspective, sales on a nominal

basis decreased by 2% in growth geographies in 2017

and on a comparable basis sales*) showed low-single-

digit growth, mainly driven by low-single-digit growth in

China. Sales in mature geographies increased by 1% on

a nominal basis and showed low-single-digit growth on

a comparable basis*), driven by mid-single-digit growth

in Western Europe and North America, partly offset by a

low-single-digit decline in other mature geographies.

Personal Health businessesPhilips GroupPersonal Health In millions of EUR unless otherwise stated2016 - 2018


Sales in growth geographies decreased 1% on a nominal

basis in 2018 and on a comparable basis*) showed high-

single-digit growth, reflecting double-digit growth in

Central & Eastern Europe, high-single-digit growth in

Latin America, and low-single-digit growth in Middle

East & Turkey. Sales in mature geographies decreased

1% on a nominal basis and on a comparable basis*)

showed low-single-digit growth, reflecting high-single-

digit growth in other mature geographies, flat sales in

North America, and a low-single-digit decline in

Western Europe.

Sales in growth geographies increased 7% on a nominal

basis in 2017 and on a comparable basis*) growth

geographies showed double-digit growth, reflecting

double-digit growth in Latin America, Middle East &

Turkey and India, and high-single-digit growth in China

and Central & Eastern Europe. Mature geographies

increased 1% on a nominal basis and on a comparable

basis*) recorded low-single-digit growth, driven by mid-

single-digit growth in Western Europe and low-single-

digit growth in North America, partly offset by a low-

single-digit decline in other mature geographies.

Gross margin

In 2018, Philips’ gross margin increased to EUR 8,554

million, or 47.2% of sales, from EUR 8,181 million, or

46.0% of sales, in 2017. Gross margin in 2018 included

EUR 79 million of restructuring and acquisition-related

charges, whereas 2017 included EUR 98 million of

restructuring and acquisition-related charges. 2018 also

included EUR 28 million of charges related to the

consent decree focused on defibrillator manufacturing

in the US. Gross margin in 2017 also included EUR 40

million of charges related to quality and regulatory

actions, EUR 14 million of charges related to the consent

decree and a EUR 36 million net release of legal

provisions. The year-on-year increase was mainly

driven by improved operational performance in the

Diagnosis & Treatment businesses, Personal Health

businesses and higher IP royalty income.

In 2017, Philips’ gross margin increased to EUR 8,181

million, or 46.0% of sales, from EUR 7,939 million, or

45.6% of sales, in 2016. Gross margin in 2017 included

EUR 98 million of restructuring and acquisition-related

charges, whereas 2016 included EUR 22 million of

restructuring and acquisition-related charges. 2017 also

included EUR 40 million of charges related to quality

and regulatory actions, EUR 14 million of charges

related to the consent decree and a EUR 36 million net

release of provisions. Gross margin in 2016 also

included a EUR 12 million net release of provisions and

EUR 4 million of charges related to the separation of the

Lighting business. The year-on-year increase was

mainly driven by improved operational performance in

the Personal Health, Diagnosis & Treatment and

Connected Care & Health Informatics businesses, partly

offset by higher restructuring and acquisition-related

charges.

Selling expenses

Selling expenses amounted to EUR 4,500 million in

2018, or 24.8% of sales, compared to EUR 4,398 million,

or 24.7% of sales, in 2017. Selling expenses in 2018

included EUR 86 million of restructuring and

acquisition-related charges, compared to EUR 127

million in 2017. Selling expenses in 2018 also included a

EUR 18 million charge related to the conclusion of the

European Commission investigation into retail pricing

and EUR 16 million related to the consent decree.

Selling expenses in 2017 also included EUR 9 million

related to the separation of Philips Lighting and EUR 4

million of charges related to the consent decree.

Selling expenses amounted to EUR 4,398 million in

2017, or 24.7% of sales, compared to EUR 4,142 million,

or 23.8% of sales, in 2016. Selling expenses in 2017

included EUR 127 million of restructuring and

acquisition-related charges, compared to EUR 47

million in 2016. Selling expenses in 2017 also included

EUR 9 million related to the separation of Philips

Lighting and EUR 4 million of charges related to the

consent decree. Selling expenses in 2016 also included

EUR 38 million related to the separation of Philips

Lighting.

General and administrative expenses

General and administrative expenses increased to EUR

631 million, or 3.5% of sales, in 2018, compared to EUR

577 million, or 3.2% of sales, in 2017. 2018 included EUR

29 million of restructuring and acquisition related-

charges, compared to EUR 19 million in 2017. 2017 also

included charges of EUR 21 million related to the

separation of Philips Lighting.

North America 1,901 1,936 1,894




Sales 7,099 7,310 7,228

Nominal sales growth (%) 5% 3% (1)%


(%) 1) 7% 6% 3%

2016 2017 2018




General and administrative expenses decreased to EUR

577 million, or 3.2% of sales, in 2017, compared to EUR

658 million, or 3.8% of sales, in 2016. 2017 included EUR

19 million of restructuring and acquisition related-

charges, compared to EUR 5 million in 2016. General

and administrative expenses in 2017 also included

charges of EUR 21 million related to the separation of

Philips Lighting. 2016 also included charges of EUR 109

million related to the separation of Philips Lighting, a

EUR 26 million impairment of real estate assets, as well

as a EUR 46 million gain from the settlement of a

pension-related claim.

Research and development expenses

Research and development costs decreased from EUR

1,764 million, or 9.9% of sales, in 2017 to EUR 1,759

million, or 9.7% of sales, in 2018. Research and

development costs in 2018 included EUR 64 million of

restructuring and acquisition-related charges, compared

to EUR 72 million in 2017. 2018 also included EUR 12

million of charges related to the consent decree.

Research and development costs increased from EUR

1,669 million, or 9.6% of sales, in 2016 to EUR 1,764

million, or 9.9% of sales, in 2017. Research and

development costs in 2017 included EUR 72 million of

restructuring and acquisition-related charges, compared

to EUR 21 million in 2016. 2017 also included charges of

EUR 22 million related to portfolio rationalization

measures, EUR 7 million of charges related to quality

and regulatory actions, and EUR 2 million of charges

related to the consent decree. The year-on-year

increase was mainly due to higher restructuring and

acquisition-related charges. Excluding these charges,

research and development costs amount to 9.3% of

sales.

Philips GroupResearch and development expenses in millions of EUR unlessotherwise stated2016 - 2018

Connected Care & Health Informatics 388 399 371

Personal Health 412 415 425

Other 240 235 207

Philips Group 1,669 1,764 1,759

As a % of sales 9.6% 9.9% 9.7%

2016 2017 2018

Diagnosis & Treatment 629 715 756



Net income, Income from operations (EBIT) and

Adjusted EBITA*)

Net income is not allocated to segments as certain

income and expense line items are monitored on a

centralized basis, resulting in them being shown on a

Philips Group level only.

The overview below shows Income from operations and

Adjusted EBITA*) according to the 2018 segment

classifications.

Philips GroupIncome from operations and Adjusted EBITA 1) in millions of EURunless otherwise stated2016 - 2018


In 2018, net income decreased by EUR 773 million

compared to 2017, mainly due to the deconsolidation of

Signify.

In 2018, Income from operations increased by EUR 202

million year-on-year to EUR 1,719 million, or 9.5% of

sales. Restructuring and acquisition-related charges

amounted to EUR 258 million, compared to EUR 316

million in 2017. Income from operations in 2018 also

included: EUR 56 million of charges related to the

consent decree; EUR 18 million of the total EUR 30

million provision related to the conclusion of the

European Commission investigation into retail pricing,

of which the other EUR 12 million was recognized in

Discontinued operations. 2017 also included: EUR 47

million of charges related to quality and regulatory

actions; EUR 31 million of charges related to the

separation of the Lighting business; EUR 26 million of

provisions related to the CRT (Cathode Ray Tube)

litigation in the US; EUR 22 million of charges related to

portfolio rationalization measures; EUR 20 million of

charges related to the consent decree; a EUR 59 million

net gain from the sale of real estate assets; a EUR 36

million net release of legal provisions.

Adjusted EBITA*) amounted to EUR 2,366 million, or

13.1% of sales, and improved by EUR 213 million, or 100

basis points as a % of sales, compared to 2017. The

improvement was mainly due to growth, operational

improvements and higher IP royalty income.

The 2018 performance resulted in an increase of Income

from continuing operations per share of 29% from 1.08

in 2017 to EUR 1.39 in 2018. Adjusted income from

continuing operations attributable to shareholders per

common share*) increased by 14% from 1.54 in 2017 to

EUR 1.76 in 2018.

In 2017 net income increased by EUR 379 million

compared to 2016, driven by improvements in

operational performance, lower net financial expenses

and higher discontinued operations results, partly offset

by higher restructuring and acquisition-related charges

and higher income taxes, which included a total non-

cash tax charge of EUR 171 million due to the US Tax

Cuts and Jobs Act.

In 2017, Income from operations increased by EUR 53

million year-on-year to EUR 1,517 million, or 8.5% of

sales. Restructuring and acquisition-related charges

amounted to EUR 316 million, including the charges

related to Spectranetics, compared to EUR 94 million in

2016. Income from operations in 2017 also included EUR

47 million of charges related to quality and regulatory

actions, EUR 31 million of charges related to the

separation of Philips Lighting, EUR 26 million of

provisions related to the CRT (Cathode Ray Tube)

litigation in the US, EUR 22 million of charges related to

portfolio rationalization measures, EUR 20 million of

charges related to the consent decree focused on the

defibrillator manufacturing in the US, a EUR 59 million

net gain from the sale of real estate assets, and a EUR

36 million net release of provisions. 2016 also included

EUR 152 million of charges related to the separation of

Philips Lighting, a EUR 26 million impairment of real

estate assets, a EUR 12 million net release of provisions,

and a EUR 46 million gain from the settlement of a

pension-related claim.

Adjusted EBITA*) amounted to EUR 2,153 million, or

12.1% of sales, and improved by EUR 232 million or 110

basis points as a % of sales compared to 2016. The

improvement was mainly attributable to higher

volumes, procurement savings and other cost

productivity.

The 2017 performance resulted in an increase of Income

from continuing operations per share of 21% from 0.89

in 2016 to EUR 1.08 in 2017. Adjusted income from


Diagnosis &

Treatment 600 8.3% 838 11.6%

Connected

Care & Health

Informatics 179 5.8% 341 11.1%

Personal

Health 1,045 14.5% 1,215 16.8%

Other (105) (28)

Philips Group 1,719 9.5% 2,366 13.1%

2017

Diagnosis &

Treatment 488 7.1% 716 10.4%

Connected

Care & Health

Informatics 206 6.5% 372 11.8%

Personal

Health 1,075 14.7% 1,221 16.7%

Other (252) (157)

Philips Group 1,517 8.5% 2,153 12.1%

Diagnosis &

Treatment 546 8.2% 631 9.4%

Connected

Care & Health

Informatics 275 8.7% 324 10.3%

Personal

Health 953 13.4% 1,108 15.6%

Other (310) (142)

Philips Group 1,464 8.4% 1,921 11.0%

Income

from

operations

as a %

of sales

Adjusted

EBITA1)as a % of

sales

2018

2016



common share*) increased by 24% from 1.24 in 2016 to

EUR 1.54 in 2017.


Income from operations increased to EUR 600 million,

or 8.3% of sales, compared to EUR 488 million, or 7.1%

of sales, in 2017. The year 2018 included EUR 97 million

of amortization charges, compared to EUR 55 million in

2017. These charges mainly relate to intangible assets in

Image-Guided Therapy. Restructuring and acquisition-

related charges to improve productivity were EUR 142

million, compared to EUR 151 million in 2017, which also

included the charges related to the acquisition of

Spectranetics, as well as charges of EUR 22 million

related to portfolio rationalization measures.

Adjusted EBITA*) increased by EUR 122 million and the

margin improved to 11.6%, mainly due to growth and

operational improvements.

Income from operations decreased to EUR 488 million,

or 7.1% of sales, compared to EUR 546 million, or 8.2%

of sales, in 2016. The year 2017 included EUR 55 million

of amortization charges, compared to EUR 48 million in

2016. These charges mainly related to intangible assets

in Image-Guided Therapy. Restructuring and

acquisition-related charges were EUR 151 million,

compared to EUR 37 million in 2016. The year 2017 also

included charges of EUR 22 million related to portfolio

rationalization measures.

Adjusted EBITA*) increased by EUR 85 million or 100

basis points as a % of sales year-on-year. The increase

was mainly attributable to higher volumes.


Income from operations in 2018 decreased to EUR 179

million, compared to EUR 206 million in 2017. The year

2018 included EUR 46 million of amortization charges,

compared to EUR 44 million in 2017. These charges

mainly related to acquired intangible assets in

Population Health Management. Restructuring and

acquisition-related charges amounted to EUR 59

million, compared to EUR 91 million in 2017. The year

2018 also included EUR 56 million of charges related to

the consent decree. 2017 also included EUR 47 million

of charges related to quality and regulatory actions,

EUR 20 million of charges related to the consent decree

and a EUR 36 million net release of provisions.

Adjusted EBITA*) decreased by EUR 31 million and the

margin decreased to 11.1% of sales, mainly due to lower

growth and adverse currency impacts.

Income from operations in 2017 decreased to EUR 206

million compared to EUR 275 million in 2016. The year

2017 included EUR 44 million of amortization charges,

compared to EUR 46 million in 2017. These charges

mainly related to acquired intangible assets in

Population Health Management. Restructuring and

acquisition- related charges amounted to EUR 91

million compared to EUR 14 million in 2016. The year

2017 also included EUR 47 million of charges related to

quality and regulatory actions, EUR 20 million of

charges related to the consent decree focused on the

defibrillator manufacturing in the US and a EUR 36

million net release of provisions.

Adjusted EBITA*) improved by EUR 48 million or 150

basis points as a % of sales year-on-year, mainly due to

higher volumes, procurement savings and other cost

productivity.




Income from operations in 2018 decreased to EUR 1,045

million, or 14.5% of sales, compared to EUR 1,075

million, or 14.7% of sales, in 2017, mainly due to a EUR 18

million charge related to the conclusion of the

European Commission investigation into retail pricing

and higher restructuring and acquisition-related

charges. The year 2018 included EUR 126 million of

amortization charges, compared to EUR 135 million in

2017. These charges mainly relate to intangible assets in

Sleep & Respiratory Care. Restructuring and acquisition-

related charges were EUR 26 million, compared with

EUR 11 million in 2017.

Adjusted EBITA*) decreased by EUR 6 million, while the

margin improved to 16.8%, mainly due to operational

improvements offset by adverse currency impacts.

Income from operations in 2017 increased to EUR 1,075

million, or 14.7% of sales compared to EUR 953 million,

or 13.4% of sales in 2016. The year 2017 included EUR

135 million of amortization charges, compared to EUR

139 million. These charges mainly relate to intangible

assets in Sleep & Respiratory Care. Restructuring and

acquisition-related charges were EUR 11 million,

compared to EUR 16 million in 2016.

Adjusted EBITA*) increased by EUR 113 million or 110

basis points as a % of sales compared to 2016. The

increase was attributable to higher volumes and

procurement savings, partly offset by investments in

advertising & promotion.

Other

In Other we report on the items Innovation, IP Royalties,

Central costs and Other.

In 2018, Income from operations totaled EUR (105)

million, compared to EUR (252) million in 2017. The year

2018 included: restructuring and acquisition-related

charges of EUR 31 million; a gain related to divestments;

a release related to a legal provision; a gain related to

movements in environmental provisions. The year 2017

included: restructuring and acquisition-related charges

of EUR 64 million; a EUR 59 million gain on the sale of

real estate assets; EUR 31 million of charges related to

the separation of Philips Lighting; EUR 26 million of

provisions related to the CRT litigation in the US; EUR 15

million of costs related to environmental provisions;

EUR 14 million of stranded costs related to the

combined Lumileds and Automotive businesses.

Adjusted EBITA*) increased by EUR 129 million

compared to 2017, mainly due to higher IP royalty

income and revenue from innovation.

In 2016, Income from operations totaled EUR (310)

million. The year 2016 included restructuring and

acquisition-related charges of EUR 28 million and a

EUR 26 million impairment of real estate assets. The

year-on-year decrease was mainly due to lower royalty

income, higher restructuring and acquisition-related

charges and higher provision-related charges, partly

offset by lower Central costs.

Adjusted EBITA*) in 2017 decreased by EUR 15 million

compared to 2016, mainly due to lower royalty income

and higher provision-related charges in Other, partly

offset by lower Central costs.

Financial income and expenses

A breakdown of Financial income and expenses is

presented in the following table.

Philips GroupFinancial income and expenses in millions of EUR2016 - 2018

Net interest expense in 2018 was EUR 25 million lower

than in 2017, mainly due to lower interest expenses on

pensions and lower interest expenses on net debt*).

Other financial expenses amounted to EUR 62 million in

2018, and mainly included financial charges related to

the early redemption of USD bonds of EUR 46 million.

Other financial income of EUR 46 million in 2017

included dividends from the combined businesses of

Lumileds and Automotive. For further information, refer

to Financial income and expenses, starting on page 0.

Net interest expense in 2017 was EUR 117 million lower

than in 2016, mainly driven by lower interest expenses

on net debt*), as high cost debt was replaced with lower

cost debt. Other financial income amounted to EUR 46

million in 2017, mainly due to dividend income related

to the retained interest in the combined businesses of

Lumileds and Automotive. For further information, refer

to Financial income and expense, starting on page 0.

Income taxes

Income taxes amounted to EUR 193 million, compared

to EUR 349 million in 2017. The effective income tax rate

in 2018 was 12.8%, compared to 25.3% in 2017. The

decrease was mainly due to one-time non-cash

benefits from tax audit resolutions and business

integrations in 2018. Net impact of the US Tax Cuts and

Jobs Act was not material in 2018.

Income taxes amounted to EUR 349 million, compared

to EUR 203 million in 2016. The effective income tax rate

in 2017 was 25.3%, compared to 19.9% in 2016. This

increase was largely due to a tax charge of EUR 72

million for a valuation adjustment of Philips’ US

deferred tax assets following the enactment of the US

Tax Cuts and Jobs Act in December 2017.

Investment in associates

Results related to investments in associates improved

from a loss of EUR 4 million in 2017 to a loss of EUR 2

million in 2018, mainly due to a EUR 4 million

impairment in 2017.

Sale of securities 3 1 6

Impairments (24) (2) -

Other (122) 46 (62)

Financial income and expenses (442) (137) (213)

2016 2017 2018

Interest expense (net) (299) (182) (157)



Results related to investments in associates decreased

from a gain of EUR 11 million in 2016 to a loss of EUR 4

million in 2017, mainly due to an impairment of EUR 4

million and lower share of income of associates in 2017

compared to 2016.

Discontinued operationsPhilips GroupDiscontinued operations, net of income taxes in millions of EUR2016 - 2018

Discontinued operations mainly reflects dividends

received of EUR 32 million and a EUR 218 million loss

related to a value adjustment of the remaining interest

in Signify. In 2017, Discontinued operations included the

operating results of Signify and the combined Lumileds

and Automotive businesses of EUR 393 million and EUR

149 million respectively prior to their deconsolidation

during the course of 2017. On June 30, 2017, Philips

completed the sale of an 80.1% interest in the combined

Lumileds and Automotive businesses, which resulted in

a loss of EUR 72 million after tax in 2017, while 2018

included a EUR 8 million gain related to a final

settlement on the sale. The year 2017 also included a

EUR 599 million net gain following the deconsolidation

of Signify, a EUR 104 million charge related to the

market value of the retained interest in Signify, and a

one-time non-cash tax charge of EUR 99 million due to

the US Tax Cuts and Jobs Act.

Discontinued operations in 2017 results increased by

EUR 183 million, mainly due to a EUR 599 million net

gain from the deconsolidation of Philips Lighting, partly

offset by a EUR 104 million charge related to the change

in value of the retained interest in Philips Lighting, a tax

charge of EUR 99 million due to the US Tax Cuts and

Jobs Act, and the exclusion of the operational results of

the combined businesses of Lumileds and Automotive

from Discontinued operations following the divestment

in Q2 2017. The year 2016 included the Funai arbitration

award.

For further information, refer to Discontinued operations

and assets classified as held for sale, of the Annual

Report 2018

Non-controlling interests

Net income attributable to non-controlling interests

decreased from EUR 214 million in 2017 to EUR 7 million

in 2018, mainly due to the deconsolidation of Philips

Lighting as from the end of November 2017.

Net income attributable to non-controlling interests

increased from EUR 43 million in 2016 to EUR 214

million in 2017, mainly as a result of three sales

transactions in Philips Lighting shares, which reduced

the interest in this company from 71.23% as of

December 31, 2016 to 29.01% as of December 31, 2017.

In 2018, the total costs of post-employment benefits

amounted to EUR 46 million for defined-benefit plans

and EUR 327 million for defined-contribution plans.

These costs are reported in Income from operations,

except for the net interest cost component, which is

reported in Financial expense. The net interest cost for

defined-benefit plans was EUR 23 million in 2018.

The overall funded status and balance sheet improved

in 2018 from EUR 972 million to EUR 834 million, mainly

due to an additional contribution of EUR 130 million

(USD 150 million) in the US.


amounted to EUR 69 million for defined-benefit plans

and EUR 315 million for defined-contribution plans. The

net interest cost for defined-benefit plans was EUR 37

million in 2017.

2017 included a settlement of the Brazil pension plans,

decreasing the defined-benefit obligation by EUR 345

million and recognizing a settlement loss of EUR 1

million.

The balance sheet improved in 2017 from EUR 1,997

million to EUR 972 million, mainly due to the transfer of

Lighting to Discontinued operations and an additional

contribution of EUR 219 million in the US.


amounted to EUR 29 million for defined benefit plans

and EUR 299 million for defined contribution plans. The

net interest cost for defined benefit plans was EUR 48

million in 2016.

2016 included a legal claim settlement gain of EUR 46

million related to the UK pension plan.

For further information, refer to Post-employment

benefits, of the Annual Report 2018 .

The combined Lumileds and

Automotive businesses 282 (29) 12

Other 134 (24) (27)

Net income of Discontinued

operations 660 843 (213)


*)

Pensions4.1.2

2016 2017 2018

Signify, formerly Philips Lighting 244 896 (198)



Philips GroupRestructuring and related charges in millions of EUR2016 - 2018

In 2018, the most significant restructuring projects

impacted Diagnosis & Treatment, Connected Care &

Health Informatics and Other businesses and mainly

took place in the Netherlands, Germany and the US.

The restructuring mainly comprised product portfolio

rationalization and the reorganization of global support

functions.

In 2017, Income from operations included net

restructuring charges totaling EUR 211 million. The most

significant restructuring projects impacted the

Connected Care & Health Informatics businesses,

Diagnosis & Treatment businesses and Other, and

mainly took place in the Netherlands and the US. The

restructuring mainly comprised product portfolio

rationalization and the reorganization of global support

functions.

In 2016, Income from operations included net charges

totaling EUR 58 million for restructuring. The most

significant restructuring projects were mainly related to

overhead cost reduction programs in Other and took

place in the Netherlands.

For further information on restructuring, refer to

Provisions, of the Annual Report 2018.

Philips GroupAcquisition-related charges in millions of EUR2016 - 2018

In 2018, acquisition-related charges amounted to EUR

99 million. The Diagnosis & Treatment businesses

recorded EUR 64 million of acquisition-related charges,

mainly related to the acquisition of Spectranetics, a US-

based global leader in vascular intervention and lead

management solutions.

In 2017, acquisition-related charges amounted to EUR



mainly related to the acquisition of Spectranetics.

Acquisition-related charges relating to Volcano were

also included as part of the Diagnosis & Treatment

businesses’ acquisition-related charges.

The 2016 acquisition-related charges amounted to EUR



mainly related to Volcano.

In addition to the annual goodwill-impairment tests for

Philips, trigger-based impairment tests were performed

during the years 2018, 2017 and 2016, resulting in no

goodwill impairment, an impairment of EUR 9 million

and an impairment of EUR 1 million for the respective

years.

For further information on the goodwill sensitivity

analysis, please refer to Goodwill, of the Annual Report

2018.

Acquisitions

In 2018, Philips completed nine acquisitions, with EPD

Solutions Ltd. (EPD) being the most notable.

Acquisitions in 2018 and prior years led to acquisition

and post-merger integration charges of EUR 64 million

in the Diagnosis & Treatment businesses and EUR 25

million in the Connected Care & Health Informatics

businesses.

In 2017, Philips completed several acquisitions, with The

Spectranetics Corporation (Spectranetics) being the

largest. Spectranetics is a US-based global leader in

vascular intervention and lead management solutions

and is present in 11 countries. Acquisitions in 2017 and

prior years led to acquisition and post-merger

integration charges of EUR 88 million in the Diagnosis &

Treatment businesses and EUR 10 million in the

Connected Care & Health Informatics businesses.

In 2016, Philips completed two acquisitions, the largest

being Wellcentive, a leading US-based provider of

population health management software solutions.

Acquisitions in 2016 and prior years led to acquisition

and post-merger integration charges of EUR 31 million

in the Diagnosis & Treatment businesses and EUR 4

million in the Connected Care & Health Informatics

businesses.

Restructuring and acquisition-relatedcharges and goodwill impairment charges

4.1.3

Restructuring and related

charges per segment:



Informatics 9 81 34

Personal Health 16 8 21

Other 27 59 26

Philips Group 58 211 159

Cost breakdown of

restructuring and related

charges:

Personnel lay-off costs 63 150 136

Release of provision (34) (37) (37)

Transfer to Assets held for sale (5)

Restructuring-related asset

impairment 14 77 21

Other restructuring-related

costs 14 27 39




Informatics 4 10 25

Personal Health 3 5

Other 1 5 5


Acquisitions and divestments4.1.4

2016 2017 2018

2016 2017 2018



Divestments

Philips completed one divestment in 2018. The

divestment involved an aggregated consideration of

EUR 58 million and resulted in a gain of EUR 44 million.

Apart from the sale of the Combined Lumileds and

Automotive businesses and the deconsolidation of

Signify, Philips completed two divestments during 2017

at an aggregate cash consideration of EUR 54 million.

For details, please refer to Acquisitions and

divestments, of the Annual Report 2018.

The movements in cash and cash equivalents for the

years ended December 31, 2016, 2017 and 2018 are

presented and explained below:

Philips GroupCondensed consolidated cash flows statements in mullions of EUR2016 - 2018


Net cash provided by (used for) operating activities

Net cash flows provided by operating activities

amounted to EUR 1,780 million in 2018, compared to

EUR 1,870 million in 2017. Free cash flow*) amounted to

EUR 984 million, which included a EUR 176 million

outflow related to pension liability de-risking in the US

and premium payments related to an early bond

redemption, compared to EUR 1,185 million in 2017.

Net cash flows provided by operating activities

amounted to EUR 1,870 million in 2017, which was EUR

700 million higher than in 2016, mainly due to EUR 379

million higher earnings in 2017 and the higher outflows

recorded in 2016 related to the Masimo agreements.

Net cash provided by (used for) investing activities

In 2018, other cash flows from investing activities

amounted to a cash outflow of EUR 690 million, mainly

due to acquisitions of businesses (including acquisition

of investments in associates) amounting to EUR 628

million. EPD was the biggest acquisition in 2018,

resulting in a cash outflow of EUR 273 million, including

the subsequent payments. Net cash proceeds from

divestment of businesses amounted to EUR 70 million

and were received mainly from divested businesses

held for sale. Other investing activities mainly included

EUR 177 million net cash used for foreign exchange

derivative contracts related to activities for funding and

liquidity management.

In 2017, other cash flows from investing activities

amounted to a cash outflow of EUR 2,514 million,

mainly due to acquisitions of businesses (including

acquisition of investments in associates) amounting to

EUR 2,344 million, which included the acquisition of

Changes in cash and cash equivalents,including cash flows

4.1.5

Net cash flows from

operating activities 1,170 1,870 1,780

Net capital expenditures (741) (685) (796)

Free cash flow 1) 429 1,185 984

Other cash flows from investing

activities (352) (2,514) (690)

Treasury shares transactions (526) (414) (948)

Changes in debt (1,611) (205) 160

Dividend paid to shareholders

of the Company (330) (384) (401)

Sale of shares of Signify (former

Philips Lighting), net 825 1,060

Other cash flow items (18) (186) (3)

Net cash flows discontinued

operations 2,151 1,063 647

Ending cash balance 2,334 1,939 1,688

2016 2017 2018

Beginning cash balance 1,766 2,334 1,939



Spectranetics for EUR 1,908 million. Net cash proceeds

from divestment of businesses amounted to EUR 64

million and were received mainly from divested

businesses held for sale. Other investing activities

mainly included EUR 295 million net cash used for

foreign exchange derivative contracts related to

activities for funding and liquidity management, partly

offset by EUR 90 million received related to TPV

Technology Limited loans.

In 2016, acquisitions of businesses (including acquisition

of investments in associates) amounted to a cash

outflow of EUR 197 million, which included the

acquisition of Wellcentive. Other investing activities

mainly included EUR 128 million net cash used for

foreign exchange derivative contracts related to

activities for funding and liquidity management.

Net cash provided by (used for) financing activities

Treasury shares transactions mainly include the share

buy-back activities, which resulted in EUR 948 million

net cash outflow. Philips’ shareholders were given EUR

738 million in the form of a dividend, of which the cash

portion of the dividend amounted to EUR 401 million.

Changes in debt mainly reflected EUR 866 million cash

outflow related to the bond redemption and EUR 990

million cash inflow from bonds issued.

In 2017, Philips’ shareholders were given EUR 742 million

in the form of a dividend, of which the cash portion of

the dividend amounted to EUR 384 million. Net cash

proceeds from the sale of Signify shares amounted to

EUR 1,060 million. Change in debt mainly reflected EUR

1.2 billion cash outflow related to the bond redemption

and EUR 1 billion cash inflow from bonds issued.

Additionally, net cash outflows for share buy-back and

share delivery totaled EUR 414 million.

In 2016, Philips’ shareholders were given EUR 732

million in the form of a dividend, of which the cash

portion of the dividend amounted to EUR 330 million.

Net cash proceeds of EUR 825 million related to the

sales of shares in Philips Lighting. Change in debt

mainly reflected the repayment of a loan related to the

Volcano acquisition of EUR 1,186 million. Additionally,

net cash outflows for share buy-back and share

delivery totaled EUR 526 million.

Net cash provided by (used for) discontinued

operationsPhilips GroupNet cash provided by (used for) discontinued operations in millionsof EUR2016 - 2018

In 2018, net cash provided by (used for) discontinued

operations amounted to EUR 647 million and mainly

included a total of EUR 642 million in relation to the

sale of Signify shares and the dividend received from

Signify reported in investing activities.

In 2017, net cash provided by (used for) operating

activities amounted to EUR 350 million and reflected

the period prior to the divestment of the combined

Lumileds and Automotive businesses (six months of

cash flows) and prior to the deconsolidation of Philips

Lighting (11 months of cash flows). In 2017, net cash

provided by (used for) investing activities amounted to

EUR 856 million and included the net cash outflow

related to the deconsolidation of Philips Lighting of EUR

175 million, (consisting of EUR 545 million proceeds

from the sale of shares on November 28, 2017, offset by

the deconsolidation of EUR 720 million of cash and

cash equivalents), and proceeds of EUR 1.1 billion

received from the sale of the combined Lumileds and

Automotive businesses.

In 2016, net cash provided by (used for) investing

activities included EUR 144 million cash inflow related to

the Funai arbitration and net cash provided by (used

for) financing activities included new funding of EUR 1.2

billion attracted by Philips Lighting.

Condensed consolidated balance sheets for the years

2016, 2017 and 2018 are presented below:

Philips GroupCondensed consolidated balance sheets in millions of EUR2016 - 2018


Net cash provided by (used for)

investing activities (112) 856 662


financing activities 1,226 (144)


discontinued operations 2,151 1,063 647


*)

Financing4.1.6

Property, plant and equipment 2,155 1,591 1,712

Inventories 3,392 2,353 2,674

Receivables 5,636 4,148 4,344

Assets classified as held for sale 2,180 1,356 87

Other assets 4,123 2,874 3,421

Payables (6,028) (4,492) (3,957)

Provisions (3,606) (2,059) (2,151)

Liabilities directly associated

with assets held for sale (525) (8) (12)

Other liabilities (3,052) (2,017) (2,962)

Net asset employed 16,725 14,799 15,249

Cash and cash equivalents 2,334 1,939 1,688

Debt (5,606) (4,715) (4,821)

Net debt 1) (3,272) (2,776) (3,132)

Non-controlling interests (907) (24) (29)

Shareholders' equity (12,546) (11,999) (12,088)

Financing (16,725) (14,799) (15,249)

2016 2017 2018


operating activities 1,037 350 (15)

2016 2017 2018

Intangible assets 12,450 11,054 12,093



Total debt outstanding at the end of 2018 was EUR

4,821 million, compared with EUR 4,715 million at the

end of 2017.

Philips GroupBalance sheet changes in debt in millions of EUR2016 - 2018

In 2018, total debt increased by EUR 105 million

compared to 2017. New borrowings of long-term debt of

EUR 1,287 million were mainly due to the issuance of

fixed-rate bonds, EUR 500 million due 2024 and EUR

500 million due 2028, and a new long-term loan of EUR

200 million. Repayments of long-term debt amounted

to EUR 1,161 million, mainly due to the early redemption

of all the 3.750% USD bonds due 2022 with an

aggregate principal amount of USD 1.0 billion, the

redemption of 6.875% USD bonds due 2038 with an

aggregate principal amount of USD 72 million, and the

repayment of a loan of EUR 178 million. Changes in

payment obligations from forward contracts are mainly

related to maturing forward contracts for the 2017 share

buyback program and new forward contracts entered

into for the extended share repurchase program for LTI

and stock purchase plans announced in November

2018. These payment obligations are recorded as

financial liabilities under long-term and short-term

debt. Other changes, mainly resulting from new leases

recognized and currency effects, led to an increase of

EUR 70 million.

In 2017, total debt decreased by EUR 891 million

compared to 2016. New borrowings of long-term debt

of EUR 1,115 million were mainly due to the issuance of

EUR 500 million floating-rate bonds due 2019 and EUR

500 million fixed-rate bonds due 2023. Repayments of

long-term debt amounted to EUR 1,332 million, mainly

due to the early redemption of the 5.750% bonds due

2018 in the aggregate principal amount of USD 1,250

million. Payment obligations from forward contracts are

mainly related to the EUR 1.5 billion share buyback

program announced in June 2017. Other changes,

mainly resulting from consolidation changes and

currency effects, led to a decrease of EUR 347 million.

EUR 1,342 million was transferred to Liabilities directly

associated with assets held for sale, mainly Lighting

debt.

At the end of 2018, long-term debt as a proportion of

the total debt stood at 71% with an average remaining

term (including current portion) of 7.9 years, compared

to 86% and 7.6 years respectively at the end of 2017.

Total debt outstanding at the end of 2017 was EUR 4,715

million, compared with EUR 5,606 million at the end of

2016, a decrease of EUR 891 million.

In 2016, total debt decreased by EUR 154 million

compared to 2015. New borrowings of EUR 1,304 million

were mainly due to new loan facilities for Philips

Lighting of EUR 740 million and USD 500 million to

replace intragroup financing from Royal Philips.

Repayments amounted to EUR 1,681 million, mainly due

to the repayment of a USD 1,300 million bridge loan

used for the Volcano acquisition, as well as the early

redemption of USD 285 million in the aggregate

principal amount of USD bonds. Other changes, mainly

resulting from consolidation and currency effects, led to

an increase of EUR 223 million.

At the end of 2017, long-term debt as a proportion of

the total debt stood at 86% with an average remaining

term (including current portion) of 7.6 years, compared

to 72% and 7.8 years, respectively, at the end of 2016.

For further information, please refer to Debt, of the

Annual Report 2018.

As of December 31, 2018, including the cash position

(cash and cash equivalents), as well as its EUR 1 billion

committed revolving credit facility, the Philips Group

had access to available liquidity of EUR 2,688 million,

versus gross debt (including short and long-term) of

EUR 4,821 million.

As of December 31, 2017, including the cash position

(cash and cash equivalents), as well as its EUR 1 billion

committed revolving credit facility, the Philips Group

had access to available liquidity of EUR 2,939 million,

versus gross debt (including short and long-term) of

EUR 4,715 million.

Philips GroupLiquidity position in millions of EUR2016 - 2018

Royal Philips has a EUR 1 billion committed revolving

credit facility which was signed in April 2017 and will

expire in April 2023. The facility can be used for general

group purposes, such as a backstop of its Commercial

Paper Program.

The Commercial Paper Program amounts to USD 2.5

billion, under which Philips can issue commercial paper

up to 364 days in tenor, both in the US and in Europe, in

any major freely convertible currency. As of December

Debt position4.1.7

New borrowings long-term debt (1,304) (1,115) (1,287)

Repayment long-term debt 362 1,332 1,161

Forward contracts (1,018) 124

Currency effects, consolidation

changes and other (223) 347 (70)

Transfer to liabilities directly

associated with assets held for

sale 1,342

Decrease (increase) in debt 154 891 (105)

Liquidity position4.1.8

Committed revolving credit

facilities/CP program 2,300 1,000 1,000

Liquidity 4,634 2,939 2,688

Listed equity investments at fair

value 36 49 476

Short-term debt (1,585) (672) (1,394)

Long-term debt (4,021) (4,044) (3,427)

Net available liquidity resources (936) (1,728) (1,656)

2016 2017 2018

Repayments (new borrowings)

short-term debt 1,319 4 (34)

2016 2017 2018




31, 2018, Royal Philips did not have any loans

outstanding under these facilities.

Additionally, at December 31, 2018 Philips held EUR 476

million of listed (level 1) equity investments at fair value,

mainly the remaining interest in Signify. Refer to Other

financial assets, starting on page 0 and Fair value of

financial assets and liabilities, starting on page 0.

Royal Philips’ existing long-term debt is rated A- (with

stable outlook) by Fitch, Baa1 (with stable outlook) by

Moody’s, and BBB+ (with stable outlook) by Standard &

Poor’s. As part of our capital allocation policy, our net

debt*) position is managed with the intention of

retaining a strong investment grade credit rating.

Ratings are subject to change at any time and there is

no assurance that Philips will be able to achieve this

goal. The Group’s aim when managing the net debt*)

position is dividend stability and a pay-out ratio of 40%

to 50% of adjusted income from continuing operations

attributable to shareholders*). Royal Philips’

outstanding long-term debt and credit facilities do not

contain financial covenants. Adverse changes in the

Company’s ratings will not trigger automatic withdrawal

of committed credit facilities nor any acceleration in the

outstanding long-term debt (provided that the USD-

denominated bonds issued by the Company in March

2008 and 2012 contain a ‘Change of Control Triggering

Event’ and the EUR-denominated bonds contain a

‘Change of Control Put Event’). A description of Philips’

credit facilities can be found in Debt, of the Annual

Report 2018.

Philips GroupCredit rating summary2018

Philips pools cash from subsidiaries to the extent legally

and economically feasible. Cash not pooled remains

available for local operational needs or general

purposes. The company faces cross-border foreign

exchange controls and/or other legal restrictions in a

few countries which could limit its ability to make these

balances available on short notice for general use by

the group.

Philips believes its current liquidity and direct access to

capital markets is sufficient to meet its present financing

needs.

Shareholders’ equity increased by EUR 89 million in

2018 to EUR 12,088 million at December 31, 2018. The

increase was mainly due to net results of EUR 1,097

million and the positive impact of currency translation

differences of EUR 347 million. This was mainly offset by

share repurchases made in the open market of EUR 514

million, dividend payments to shareholders of

Koninklijke Philips N.V. of EUR 400 million (including tax

and service charges), a fair value decline of financial

assets of EUR 147 million, and the impact of the

accounting for share-based compensation plans,

including the effect of related hedging transactions

through forward contracts and share call options (in

aggregate EUR 191 million).

Shareholders’ equity decreased by EUR 547 million in


decrease was mainly due to the negative impact of

currency translation differences of EUR 984 million,

share repurchases made in the open market over the

course of the year, the purchase of forward contracts of

EUR 1,079 million (for capital reduction purposes and

hedging of commitments under share-based

compensation plans), and dividend payments to

shareholders of Koninklijke Philips N.V. of EUR 384

million (including tax and service charges). This was

mainly offset by net results of EUR 1,870 million and the

sale of Signify shares of EUR 327 million.

Shareholders’ equity increased by EUR 939 million in


increase was mainly a result of EUR 1,491 million net

income, partially offset by EUR 589 million related to

the purchase of shares for the share buy-back program.

The dividend payment to shareholders of Koninklijke

Philips N.V. in 2016 reduced equity by EUR 330 million

including tax and service charges, while the delivery of

treasury shares increased equity by EUR 74 million.

Share capital structure

The number of outstanding common shares of Royal

Philips at December 31, 2018 was 914 million. At the end

of 2018, the Company held 12.0 million shares in

treasury. Of these shares, 7.9 million shares were held in

treasury to cover obligations under its long-term

incentive plans. After the cancellation of 24.2 million

shares in November 2018, a remainder of 4.1 million

shares were held to reduce share capital. In 2016,

Philips purchased call options on Philips shares to

hedge options granted to employees up to 2013. As of

December 31, 2018, Philips held 3.8 million such options.

In order to further cover obligations under its long-term

incentive plans, as well as to reduce its share capital,

Philips also entered into several forward contracts in

2017 and 2018. As of December 31, 2018, the

outstanding forward contracts related to 28.6 million

shares.

Fitch A- Stable

Moody's Baa1 P-2 Stable

Standard & Poor's BBB+ A-2 Stable


*)

Shareholders’ equity4.1.9

long-term

short-

term outlook





of 2017, the Company held 14.7 million shares in

treasury. Of these shares, 10.1 million shares were held

in treasury to cover obligations under its long-term

incentive plans. The remaining 4.6 million shares were

held to reduce share capital. As of December 31, 2017,

Philips held 6.2 million call options as a hedge of

options granted to employees. As of December 31, 2017,

the outstanding forward contracts related to 31.8. million

shares.



of 2016, the Company held 7.2 million shares in treasury

to cover obligations under its long-term incentive plans.

The Company did not hold shares for capital reduction

purposes. Philips purchased call options on Philips

shares to hedge options granted to employees up to

2013.

Share repurchase methods for long-term incentive

plans and capital reduction purposes

During 2018, Royal Philips acquired shares for long-term

incentive plans and capital reduction purposes via three

different methods: (i) share buy-back repurchases in the

open market via an intermediary, (ii) repurchase of

shares via forward contracts for future delivery of

shares, (iii) the unwinding of call options on own shares.

In 2018, Royal Philips also used methods (i) and (ii) to

acquire shares for capital reduction purposes.

The open market transactions via an intermediary allow

for buybacks during both open and closed periods.Philips GroupImpact of share repurchase on share count in thousands of shares as of December 312014-2018

Philips GroupTotal number of shares repurchased in thousands of shares unless otherwise stated2018

Shares in treasury 20,431 14,027 7,208 14,717 12,011

Shares outstanding 914,389 917,104 922,437 926,192 914,184

Shares repurchased 28,538 20,296 25,193 19,842 31,994

Shares cancelled 21,838 21,361 18,830 24,247

February 2018 7,183 30.83 373 30.31

March 2018 4,103 31.27 750 27.03

April 2018 512 31.54

May 2018 516 35.23

June 2018 395 36.18

July 2018 201 37.38

August 2018 198 38.29

September 2018 131 37.99

October 2018 4,140 34.02 3,172 31.89

November 2018 4,140 34.02 1,978 33.70

December 2018 4,140 34.02

Total 23,768 32.58 8,226 32.59

of which

purchased in the open market 11,348 5,008

acquired through exercise of call options/settlement

of forward contracts 12,420 3,218

2014 2015 2016 2017 2018

Shares issued 934,820 931,131 929,645 940,909 926,196

share repurchases

related to shares

acquired for capital

reduction

average price

paid per share

in EUR

shares acquired

for LTI's

average price

paid per share

in EUR

January 2018 62 32.64 24.18



Contractual cash obligations

The table below presents a summary of the Group’s fixed contractual cash obligations and commitments at December 31,

2018. These amounts are an estimate of future payments, which could change as a result of various factors such as a

change in interest rates, contractual provisions, as well as changes in our business strategy and needs. Therefore, the

actual payments made in future periods may differ from those presented in the table below:

Philips GroupContractual cash obligations 1) 2) in millions of EUR2018

1) Amounts in this table are undiscounted2) This table excludes post-employment benefit plan contribution commitments and income tax liabilities in respect of tax risks because it is notpossible to make a reasonably reliable estimate of the actual period of cash settlement3) Long-term debt includes short-term portion of long-term debt and excludes finance lease obligations4) Purchase obligations are agreements to purchase goods or services that are enforceable and legally binding for the Group. They specify allsignificant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timingof the transaction. They do not include open purchase orders or other commitments which do not specify all significant terms.

IFRS 16, Leases, is effective for the financial year

commencing January 1, 2019. Upon adoption, the

company expects to recognize a lease liability at the

present value of its remaining operating lease

commitments (excluding low-value leases). Refer to

Significant accounting policies, starting on page 0.

In January 2018, it was announced that the North

American headquarters will move from Andover to

Cambridge. Philips has entered into a new lease

commitment commencing in 2020 with a term of 15

years and resulting in an off-balance sheet commitment

of EUR 218 million.

Certain Philips suppliers factor their trade receivables

from Philips with third parties through supplier finance

arrangements. At December 31, 2018 approximately

EUR 275 million of the Philips accounts payable were

known to have been sold onward under such

arrangements whereby Philips confirms invoices. Philips

continues to recognize these liabilities as trade

payables and will settle the liabilities in line with the

original payment terms of the related invoices.

Other cash commitments

The Company and its subsidiaries sponsor post-

employment benefit plans in many countries in

accordance with legal requirements, customs and the

local situation in the countries involved. For a discussion

of the plans and expected cash outflows, please refer to

Post-employment benefits, of the Annual Report 2018.

The company had EUR 114 million restructuring-related

provisions by the end of 2018, of which EUR 68 million

is expected to result in cash outflows in 2019. Refer to

Provisions, of the Annual Report 2018 for details of

restructuring provisions.

A proposal will be submitted to the Annual General

Meeting of Shareholders, to be held on May 9, 2019, to

declare a dividend of EUR 0.85 per common share (an

increase of 6%), in cash or shares at the option of the

shareholder (up to EUR 777 million if all shareholders

would elect cash), against the net income for 2018.

Further details will be given in the agenda for the 2019

Annual General Meeting of Shareholders.

On January 29, 2019, Philips announced a new share

buyback program for an amount of up to EUR 1.5 billion,

which is expected to start in the first quarter of 2019 and

to be completed within two years. As the program will

be initiated for capital reduction purposes, Philips

intends to cancel all of the shares acquired under the

program.

Guarantees

Philips’ policy is to provide guarantees and other letters

of support only in writing. Philips does not provide other

forms of support. The total fair value of guarantees

recognized on the balance sheet amounts to EUR nil

million for both 2017 and 2018. Remaining off-balance-

sheet business and credit-related guarantees provided

on behalf of third parties and associates decreased by

EUR 3 million during 2018 to EUR 40 million (December

31, 2017: EUR 44 million).

Cash obligations4.1.10

total less than 1 year 1-3 years 3-5 years after 5 years

Finance lease obligations 357 100 152 53 52

Short-term debt 164 164

Operating leases 756 176 227 148 204

Derivative liabilities 296 179 2 114

Interest on debt 1,632 108 207 200 1,117

Purchase obligations 4) 666 233 352 52 30

Trade and other payables 2,303 2,303

Contractual cash obligations 10,532 4,399 1,134 1,069 3,929

Payments due by period

Long-term debt 3) 4,358 1,136 194 501 2,527



In September 2014, Philips announced its plan to

sharpen its strategic focus by establishing two stand-

alone companies focused on the HealthTech and

Lighting opportunities respectively. A stand-alone

structure was established for lighting activities within

the Philips Group, effective February 1, 2016. On May 27,

2016, Philips Lighting (renamed Signify in 2018) was

listed and started trading on Euronext in Amsterdam

under the symbol ‘LIGHT’. Following the listing of

Signify, Philips retained a 71.23% stake.

In 2017, Philips successfully completed three

accelerated bookbuild offerings to institutional investors

of 65.35 million shares in Signify, reducing Philips’ stake

in the issued share capital to 29.01% by the end of 2017.

The first two transactions in February and April 2017

involved 48.25 million shares. In April 2017, Philips

concluded that a ''loss of control'' from an accounting

perspective could occur due to the further sell down of

the remaining shares within one year. Accordingly, from

that date the lighting activities (substantially

representing Signify shares) were presented as a

discontinued operation.

In November 2017, by selling another 17.1 million shares,

Philips lost control, resulting in the deconsolidation of

Signify.

The position of 29.01% as of December 31, 2017 was a

temporary position, which fitted in Philips' overall single

coordinated plan to sell Signify in its entirety.

Consequently, any future results related to the retained

interest – like value adjustments, results upon disposal

and dividends – were reflected in Discontinued

operations. The Signify shares were presented as an

Asset classified as held for sale.

In February 2018, Philips successfully completed a

fourth accelerated bookbuild offering to institutional

investors of 16.22 million shares in Signify. During that

year, Philips sold Signify shares in the open market,

reducing its shareholding to 16.5% of Signify's issued

share capital as of December 31, 2018. As from that

date, Philips no longer had board representation in the

Supervisory Board of Signify. The remaining shares were

reclassified to Other current financial assets, with fair

value changes recognized through Other

comprehensive income.

For the third year in a row, Philips faced adverse market

conditions in 2018, due to industry cycles and raw

material price trends. Procurement performance was

therefore, more than before, dependent on product

concept re-engineering and sourcing strategies.

The combination of price erosion, market growth and

inflationary pressures impacted Philips suppliers across

the board as the anticipated risk of market headwinds

became visible. Additionally, there was tightness in the

electronic component markets. The trade tensions and

US import tariffs implemented from April 2018 resulted

in further direct and indirect financial headwinds. From

the third quarter the impact of weaker global growth,

exacerbated by a slowdown in China and uncertainty

over the impact of Brexit, resulted in returned volatility

in commodity and raw materials pricing.

Overcoming these headwinds, Philips delivered on its

2018 procurement performance ambition by optimizing

design and costs via various programs, including DfX

conventions and Total Cost of Ownership (TCO)

programs.

The year 2017

In spite of a challenging market environment, Philips

came through with the 2017 procurement performance

commitment. These results were driven by optimizing

costs via various programs, including many DfX events,

Total Cost of Ownership (TCO) programs and

negotiations to secure the best possible outcome and

overcome market headwinds.

Global growth is strengthening but the longer-term

challenges remain. Policy stimulus supported the

upturn, but the private investment recovery was

modest. Continued reliance on credit to fund growth is

heightening the risk of an eventual adjustment in China.

In addition, a further shift toward protectionist policies

in the US and a growing trend in Europe is a distinct

threat. The currency risk remains in 2018 as the euro

appreciated strongly against the US dollar and Chinese

renminbi in 2017. Geopolitical tensions, terrorism and

the European challenge with refugees could also play a

key role in the outlook in several economies.

The higher commodity market prices over the last year

created a challenging environment for Philips. The

situation in 2018 will remain the same or will be more

challenging, judging by the continuation of the

economic improvement, speculation on further pick-up

in commodity demand, and actual material market price

increases over 2017. The low price levels of raw

materials and energy during the period 2015-2016 have

led to reduced investment in future supply. This creates

the risk of new headwinds once real consumption picks

up significantly again and the supply-demand situation

reverses.

The year 2016

In the first quarter of the year, global economic growth

was running at its weakest pace in three years. In June,

an additional threat to future growth came in the shape

of Brexit, high credit growth, debt exposures in

emerging markets and volatile financial markets.

Commodity prices continued to weaken at the start of

2016. Oil and metal prices fell to extreme lows on

weaker global demand, especially due to the slowdown

in manufacturing activity in China, but also because of

increases in inventories and supply following the past

(mining) investments. Market prices for steel, however,

showed increases during 2016, driven by a steeper cost

curve, a consolidated market as well as a more

aggressive anti-dumping approach.

Sell-down Signify shares (former PhilipsLighting)

4.1.11

Procurement4.1.12



For commodities, the election of Donald Trump as US

President spurred price gains as investors bet that

demand for materials would pick up with a focus on

infrastructure and further protectionism. However,

actual consumption has not yet significantly increased

for most materials and the influence of speculation is

hard to determine.

Oil, copper, steel and other metals all surged by over

20% in the last few months of the year to the highest

price levels since mid-2015, partly driven by additional

Chinese fiscal stimulus in the form of public

construction sector support and the acceleration of

public-private partnership infrastructure projects.

The analysis of the 2017 financial results compared to

2016, and the discussion of the critical accounting

policies, have not been included in this Annual Report.

These sections are included in Philips’ Form 20-F for

the financial year 2018, which will be filed electronically

with the US Securities and Exchange Commission.

Analysis of 2017 compared to 20164.1.13



Dividend policy

Philips’ dividend policy is aimed at dividend stability

and a pay-out ratio of 40% to 50% of adjusted income

from continuing operations attributable to

shareholders*).

For 2018, the key exclusions to arrive at the adjusted

income from continuing operations attributable to

shareholders*) are described in Net income, Income

from operations (EBIT) and Adjusted EBITA*) of financial

performance , starting on page 23.

Proposed distribution

A proposal will be submitted to the Annual General

Meeting of Shareholders, to be held on May 9, 2019, to

declare a distribution of EUR 0.85 per common share, in

cash or shares at the option of the shareholder (up to

EUR 777 million if all shareholders would elect cash),

against the net income for 2018.

If the above dividend proposal is adopted, the shares

will be traded ex-dividend as of May 13, 2019 at the

New York Stock Exchange and Euronext Amsterdam. In

compliance with the listing requirements of the New

York Stock Exchange and the stock market of Euronext

Amsterdam, the dividend record date will be May 14,

2019.

Shareholders will be given the opportunity to make

their choice between cash and shares between May 15,

2019 and June 7, 2019. If no choice is made during this

election period the dividend will be paid in cash. On

June 7, 2019 after close of trading, the number of share

dividend rights entitled to one new common share will

be determined based on the volume-weighted average

price of all traded common shares of Koninklijke Philips

N.V. at Euronext Amsterdam on June 5, 6 and 7, 2019.

The Company will calculate the number of share

dividend rights entitled to one new common share (the

ratio), such that the gross dividend in shares will be

approximately equal to the gross dividend in cash. The

ratio and the number of shares to be issued will be

announced on June 12, 2019. Payment of the dividend

and delivery of new common shares, with settlement of

fractions in cash, if required, will take place from June

13, 2019. The distribution of dividend in cash to holders

of New York Registry shares will be made in USD at the

USD/EUR rate as per WM/ Reuters FX Benchmark 2 PM

CET fixing of June 11, 2019.

Further details will be given in the agenda for the 2019

Annual General Meeting of Shareholders. All dates

mentioned remain provisional until then.

Dividend in cash is in principle subject to 15% Dutch

dividend withholding tax, which will be deducted from

the dividend in cash paid to the shareholders. Dividend

in shares paid out of net income and retained earnings

is subject to 15% dividend withholding tax, but only in

respect of the par value of the shares (EUR 0.20 per

share). Shareholders are advised to consult their tax

advisor on the applicable situation with respect to taxes

on the dividend received.

In 2018, Philips settled a dividend of EUR 0.80 per

common share, representing a total value of EUR 738

million including costs. Shareholders could elect for a

cash dividend or a share dividend. Approximately 46%

of the shareholders elected for a share dividend,

resulting in the issuance of 9,533,223 new common

shares, leading to a 1.0% dilution. The dilution caused

by the newly issued dividend shares was more than

offset by the cancellation of 24,246,711 shares in

November 2018. The cash dividend involved an amount

of EUR 400 million (including costs).

Dividends and distributions per common share

The following table sets forth in euros the gross

dividends on the common shares in the fiscal years

indicated (from prior-year profit distribution) and such

amounts as converted into US dollars and paid to

holders of shares of the New York Registry:

Philips GroupGross dividends on the common shares2014 - 2018

Investor information4.2

Dividend4.2.1

Euronext

Amsterdam May 13, 2019 May 14, 2019 June 13, 2019

New York

Stock

Exchange May 13, 2019 May 14, 2019 June 13 2019

in USD 1.09 0.89 0.90 0.90 0.94


*)

ex-dividend

date record date

payment

date

2014 2015 2016 2017 2018

in EUR 0.80 0.80 0.80 0.80 0.80

Financial performance 4.2


Philips GroupShare information at year-end 2018

The following information is based on a shareholder

base analysis carried out for investor relations purposes

by an independent provider in December 2018.

Philips GroupShareholders by region at year-end 2018 1) in %

1) Approximate split based on shareholders identified.

Philips GroupShareholders by style at year-end 2018 1) in %

1) Approximate split based on shareholders identified.

Financial calendar

2019 Annual General Meeting of Shareholders

The Agenda and the explanatory notes to the Agenda

for the Annual General Meeting of Shareholders on May

9, 2019, will be published on the company’s website.

For the 2019 Annual General Meeting of Shareholders, a

record date of April 11, 2019 will apply. Those persons

who, on that date, hold shares in the Company, and are

registered as such in one of the registers designated by

the Board of Management for the Annual General

Meeting of Shareholders, will be entitled to participate

in, and vote at, the meeting.

Share information4.2.2

Ticker code PHIA, PHG

No. of shares issued 926 million

No. of shares issued and outstanding 914 million

Market capitalization EUR 28.3 billion

Industry classification

MSCI: Health Care Equipment 35101010

ICB: Medical Equipment 4535

Members of indices

AEX, NYSE, DJSI, STOXX Europe 600 Healthcare, MSCI Europe Health

Care

Financial calendar4.2.3

Annual General Meeting of

Shareholders

Record date Annual General

Meeting of Shareholders April 11, 2019

Annual General Meeting of

Shareholders May 9, 2019

Quarterly reports

First quarter results 2019 April 29, 2019

Second quarter results 2019 July 22, 2019

Third quarter results 2019 October 28, 2019

Fourth quarter results 2019 January 28, 2020

North America

France

UK

Netherlands

Rest of Europe

Other

44

13

12

8

19

4

Growth

Index

Value

GARP

Hedge Fund

Retail

Other

27

17

14

14

4

13

11

Share listings Euronext Amsterdam, New York Stock Exchange



Shareholder services

Holders of shares listed on Euronext Amsterdam

Non-US shareholders and other non-US interested

parties can make inquiries about the Annual Report

2018 to:

Royal Philips

Annual Report Office

Philips Center, HBT 12

P.O. Box 77900

1070 MX Amsterdam, The Netherlands

E-mail: [email protected]

Communications concerning share transfers, lost

certificates, dividends and change of address should be

directed to:

ABN AMRO Bank N.V.

Department Equity Capital Markets/Corporate Broking

HQ7050

Gustav Mahlerlaan 10, 1082 PP Amsterdam

The Netherlands

Telephone: +31-20-34 42000


Holders of New York Registry shares

Holders of New York Registry shares and other

interested parties in the US can make inquiries about

the Annual Report 2018 to:

Deutsche Bank Trust Company Americas

C/O AST

6201 15th Avenue Brooklyn, NY 11219

Telephone (toll-free US): +1-866-706-8374

Telephone (outside of US): +1-718-921-8137

Website: www.astfinancial.com


Communications concerning share transfers, lost

certificates, dividends and change of address should be

directed to Deutsche Bank The Annual Report on Form

20-F is filed electronically with the US Securities and

Exchange Commission.

International direct investment program

Philips offers a Dividend Reinvestment and Direct Stock

Purchase Plan designed for the US market. This

program provides existing shareholders and interested

investors with an economical and convenient way to

purchase and sell Philips New York Registry shares

(listed at the New York Stock Exchange) and to reinvest

cash dividends. Deutsche Bank (the registrar of Philips

NY Registry shares) has been authorized to implement

and administer both plans for registered shareholders

of and new investors in Philips NY Registry shares.

Philips does not administer or sponsor the Program and

assumes no obligation or liability for the operation of

the plan. For further information on this program and for

enrollment forms, contact:

Deutsche Bank Global Direct Investor Services

Telephone (toll-free US): +1-866-706-8374

Telephone (outside of US): +1-718-921-8137

Monday through Friday 8:00 AM EST through 8:00 PM

EST

Website www.astfinancial.com


or write to:

Deutsche Bank Trust Company Americas

IC/O AST

6201 15th Avenue Brooklyn, NY 11219

Analysts’ coverage

Philips is covered by approximately 20 analysts who

frequently issue reports on the company. For a list of

our current analysts, please refer to: www.philips.com/

a-w/about/investor/stock-info/analyst-coverage.html

How to reach us

The registered office of Royal Philips is

High Tech Campus 5

5656 AE Eindhoven, The Netherlands

Switch board, telephone: +31-40-27 91111

Investor Relations contact

Royal Philips

Philips Center

P.O. Box 77900

1070 MX Amsterdam, The Netherlands

Telephone: +31-20-59 77222

Website: www.philips.com/investor


Pim Preesman

Head of Investor Relations

Telephone: +31-20-59 77222

Ksenija Gonciarenko

Investor Relations Manager

Telephone: +31-20-59 77055

Sustainability contact

Philips Group Sustainability

High Tech Campus 5

5656 AE Eindhoven, The Netherlands

Telephone: +31-40-27 83651

Website: www.philips.com/sustainability


Group Press Office contact

Royal Philips

Philips Center, HBT 19

Amstelplein 2

1096 BC Amsterdam, The Netherlands


For media contacts please refer to:

www.philips.com/a-w/about/news/contacts.html

Investor contact4.2.4



mailto:[email protected]


http://www.citi.com/dr


http://www.citi.com/dr


https://www.philips.com/a-w/about/investor/stock-info/analyst-coverage.html

https://www.philips.com/a-w/about/investor/stock-info/analyst-coverage.html

http://www.philips.com/investor


http://www.philips.com/sustainability



https://www.philips.com/a-w/about/news/contacts.html

Societal impactWe are a purpose-driven company, aiming to improve

the lives of 3 billion people annually by 2025. Our

people draw inspiration from the societal impact we

achieve through our products and solutions, on both

the social and environmental dimensions. In the Annual

Report 2017 and 2018 we quantified the environmental

impact that we have as a company in Environmental

performance, starting on page 48.

In 2018 we applied the True Value methodology to start

quantifying our social impact. This includes the social

impact in our supply chain, training of our staff, and

taxes we pay. We included these impacts in How we

create value, starting on page 8. We have also started to

quantify the most complex part, the social impact we

have through our products and solutions. We will

continue to calculate the impact of our products and

solutions in collaboration with knowledge partners and

investors.

Our people strategy supports a constantly evolving

workforce, capable of delivering strong business

performance and executing our strategy. As such we

focus on our Workforce of the Future, and our deep

commitment to Inclusion & Diversity across our

workforce, supported by our culture.

At Philips, we strive to make the world healthier and

more sustainable through innovation. In 2012, we set

ourselves the goal to improve the lives of 3 billion

people a year by 2025.

To guide our efforts and measure our progress, we take

a two-dimensional approach – social and ecological –

to improving people’s lives. Products or solutions from

our portfolio that directly support the curative or

preventive side of people’s health determine the

contribution to the social dimension. This is also our

contribution to UN Sustainable Development Goal 3 (“to

ensure healthy lives and promote well-being for all at

all ages”). As healthy ecosystems are also needed for

people to live a healthy life, the contribution to the

ecological dimension is determined by means of our

steadily growing Green Products and Solutions

portfolio, such as the energy-efficient products in our

Personal Health businesses. This is our contribution to

Sustainable Development Goal 12 (“to ensure

sustainable consumption and production patterns”).

Finally, our program to become carbon-neutral in our

operations by 2020 contributes to SDG 13 ("take urgent

action to combat climate change and its impacts").

Through Philips products and solutions that support

people’s health and well-being (i.e. excluding brand

licensee Signify) we improved the lives of 1.43 billion

people in 2018 (2017: 1.37 billion), driven by Diagnosis &

Treatment businesses (+9%) and Personal Health

businesses (+5%). Our Green Products and Solutions

(excluding Signify) that support a healthy ecosystem

contributed 995 million lives. After the elimination of

double counts – people touched multiple times – we

arrived at 1.54 billion lives. This is an increase of around

45 million compared to 2017, driven by all segments,

mainly in China, the ASEAN countries, the Middle East &

Turkey, and Central & Eastern Europe. Including Signify,

we improved the lives of 2.24 billion people in 2018.

In 2014, Philips pledged to support the United Nation’s

Every Woman Every Child initiative, committing to

improve the lives of at least 100 million women and

children in Africa and South East Asia by 2025. At the

United Nations General Assembly week in September

2017, Philips made an extended commitment to

improve the lives of 300 million people in underserved

healthcare communities by 2025. Philips thereby

recognized the often critical needs of women and

children in many communities, but also the added

burden arising from the increase in non-communicable

diseases (NCDs) in communities already struggling

without adequate access to healthcare. To monitor our

progress on the extended commitment, we use the

same Lives Improved methodology, and in 2018 we

improved the lives of 175 million people in underserved

markets with our health and well-being solutions (an

increase of 22 million compared to 2017).

Social performance5.1

Improving people’s lives5.1.1

5

Societal impact 5


https://www.everywomaneverychild.org/commitment/philips/

Lives Improved per market

The following table shows the Lives Improved metric per market.

Philips GroupLives improved per market

1) Source: Philips, double counts eliminated; includes Signify2) Source: The World Bank, CIA Factbook & Wikipedia3) Source: IMF, CIA, Factbook & Wikipedia

Philips GroupLives improved in billions

The challenges of the future call for a networked

organization in which cross-functional teams actively

draw on resources across the organization and across

the world, to unite in order to achieve Philips’ overall

objectives. Our Workforce of the Future program

represents our commitment to meet the challenge of

addressing our customers’ unmet needs and deliver the

full benefits of data-enabled connected care by

attracting, developing and retaining a workforce that will

deliver the strategic capabilities we need to win.

By applying Strategic Workforce Planning, in close

alignment with the strategic planning of our businesses,

we identify and develop the employee capabilities

needed to realize our ambitions as a health technology

company. In 2018 we implemented initiatives,

company-wide, that boosted the percentage of top

performers in our most strategic positions to 56%, up

from 45% in 2018. A key driver for this was our focus on

succession planning.

We also addressed the issue of the expanding

workforce and our ability to tap into the ‘gig economy’

and other less traditional work constructs. Building on

our 2017 initiatives to better recognize the significant

contribution that contingent workers make to our

business success, in 2018 we introduced Total

Workforce Demand Management. This Total Workforce

strategy considers all sources of skills and capabilities

we require in the Workforce of the Future, as well as

location-related talent availability factors and labor

market trends. To be ready for the future we devoted

additional attention to our campus, graduate and early-

career hiring focus in 2018, which resulted in a twofold

increase in the number of campus hires compared with

2017.

More information on training and learning programs can

be found in People development, of the Annual Report

2018.

Our focus on the Workforce of the Future will continue

in 2019, with further emphasis on strategic capabilities,

the expanding workforce and early-career hires.

Africa 53 1,244 4% 2,334

ASEAN & Pacific 255 972 26% 6,591

Benelux 29 29 99% 1,515

Central & Eastern Europe 101 167 61% 1,850

Germany, Austria &

Switzerland 94 100 94% 5,203

France 57 66 87% 2,827

Greater China 511 1,429 36% 15,057

Iberia 44 57 78% 1,680

Indian Subcontinent 221 1,551 14% 3,100

Italy, Israel & Greece 55 82 67% 2,711

Japan 41 126 33% 5,071

Latin America 178 640 28% 5,521

Middle East & Turkey 111 366 30% 3,245

Nordics 26 27 96% 1,660

North America 349 365 96% 22,247

Russia & Central Asia 63 246 25% 2,007

UK & Ireland 51 72 71% 3,191

Workforce of the Future5.1.2

Market Lives Improved (million) 1) Population (million) 2)Saturation rate (as % of

population) GDP (USD million) 3)

Societal impact 5.1.2


In order to understand and meet customers’ and

patients’ needs in a complex and continually changing

environment, our workforce should reflect the society in

which we operate, our customers, and the markets we

serve. We believe that an inclusive culture allows our

120-plus nationalities to bring a rich diversity of

capabilities, opinions and perspectives to our decision-

making processes, thus driving innovation, enabling

faster, targeted responses to market changes, and

supporting sustainable improvements in business

performance.

In 2017 we renewed our approach to Inclusion &

Diversity. We set a goal of 25% gender diversity in senior

leadership positions (a subset of Management and

Executive positions) by the end of 2020 (compared with

19% at the end of 2017). In 2018 we partnered with

leading Inclusion & Diversity training providers to

develop and start rolling out unconscious bias and

inclusion trainings. We continued to strengthen our data

analytics around Inclusion & Diversity to enable a fact-

based approach to achieving our goals. In 2019 we will

continue with these efforts to ensure that all of our

leaders are trained to understand unconscious bias and

are able to engage their teams in addressing this topic.

With regard to appointment and promotion

opportunities, we transparently share open positions

and endeavor to attract candidates from a diverse range

of backgrounds and to install diverse interview panels

for recruitment for all leadership positions. We

enhanced our existing Inclusion & Diversity leadership

training offerings and increased the number of Senior

Women’s Leadership Programs for the second

consecutive year. In addition, we scaled up our other

Women’s Programs and embedded the importance of

inclusion in other (Leadership) Programs.

Philips GroupGender diversity in %2016 - 2018

Overall gender diversity increased from 36% in 2017 to

38% in 2018. Gender diversity among Executives

increased from 18% to 19% female executives. Measured

against our 2020 goal of 25% gender diversity in

Leadership positions, this figure rose from 19% in 2017 to

21% in 2018.

As we continue our transformation into a focused

leader in health technology – shifting from products to

solutions and building long-term relationships with our

customers – we are fostering a culture within Philips

that will help us achieve operational excellence and

extend our solutions capability to address our

customers’ unmet needs.

To this end, all Philips employees are expected to

commit to living our renewed behaviors – Customers

first, Quality and integrity always, Team up to win, Take

ownership to deliver fast, and Eager to improve and

inspire – every step of the way.

Putting our customers first must be at the heart of

everything we do. Only by engaging deeply with our

customers can we understand their unmet needs and

deliver superior value. We also need to be conscious, at

all times, of the high-stakes environment in which we

now operate. This environment demands that we apply

the highest quality and integrity standards – always. To

deliver superior value to our customers and ensure

quality and integrity, we need to improve how we team

up and leverage the skills and expertise right across

Philips. At the same time, we all need to take personal

ownership, enabling us to move with speed and deliver

what we promise, on time. And by applying operational

excellence and Lean ways of working, we will keep

improving and inspiring each other through the work we

do.

We staff our positions based on behavior, potential and

capabilities. In 2018 we filled 77% of our Director-level

and more senior positions from within the company. For

these internal hires, we ensure our candidates are high

performers with strong potential. In 2018, 86% of all

internal promotions to Director level and more senior

positions were realized by appointing top performers.

We supplement this internal growth with targeted

external hiring, bringing in employees with the

behaviors and capabilities we require for our Workforce

of the Future.

Inclusion & Diversity5.1.3

Our culture5.1.4

'16 '17 '18 '16 '17 '18 '16 '17 '18 '16 '17 '18 '16 '17 '18

Staff Professionals Management Executives Total

Male

Female

59

6977

82

6658

6977

82

65

52

6875

81

62

41

3123

18

3442

3123

18

35

48

3225

19

38



High employee engagement is crucial to the success of

our strategy. Our employee survey consistently reports

high levels of employee engagement that exceed the

high-performance norm of 71%, and our average

engagement score for 2018 was 74%. Despite a small

decrease in engagement from 2017 to 2018 we remain

above the high-performance norm.

Philips GroupEmployee Engagement index in %2016 - 2018

Our quarterly employee survey help keep our finger on

the pulse of employee sentiment toward the company.

We listen to employees’ ideas for improvement, show

employees that their feedback is valued, and work to

ensure that every person in our company has a role to

play in creating lasting value for our customers,

shareholders, and other stakeholders. In 2018 we

expanded our employee listening initiatives by running

regional and cross-functional dialogs. Through these

dialogs we were able to gain a better understanding of

the challenges that may be hindering our workforce, so

that we can collaboratively identify and formulate

solutions.

At Philips, we believe we perform at our best when we

look after ourselves and each other. In 2018, we

continued to develop our Health & Wellbeing programs,

which are designed to engage our employees and

empower them to adopt a healthier lifestyle and

achieve a better work/life integration. Through the

ongoing engagement of a network of Health &

Wellbeing ambassadors, we also leveraged the energy

and experience of our employees to drive local

wellbeing initiatives in our markets. These included on-

site exercise and fitness clubs, Mindfulness classes and

Energy Management workshops.

In 2018, we continued to build out our health

technology portfolio with targeted acquisitions in key

areas including image-guided therapy, healthcare

informatics, population health management, monitoring

and analytics, and sleep and respiratory care, growing

our employee base by a further 331 FTE.

The total number of Philips Group employees

(continuing operations) was 77,400 at the end of 2018,

compared to 73,951 at the end of 2017, an increase of

3,449 FTE.

Growth of our workforce in the Function R&D was the

strongest driver of the increase in FTE. Together with

Quality & Regulatory, Manufacturing and Sales these

four functions accounted for over 70% of the FTE

increase.

The increase in FTE in the segment Other with 2,956

FTE reflects, among other things, the increase in

Manufacturing employees, the shift of supporting roles

to a Global Business Services organization, and the

expansion of the Philips Innovation Center in Bangalore.

Philips GroupEmployees per segment in FTEs at year-end2016 - 2018

Philips GroupEmployment in FTEs2016 - 2018

Geographic footprint

Approximately 61% (2017: 63%) of the Philips workforce

is located in mature geographies and 39% (2017: 37%) in

growth geographies. In 2018, the number of employees

in mature geographies increased by 1,384. The number

of employees in growth geographies increased by

2,065.

Philips GroupEmployees per geographic cluster in FTEs at year-end2016 - 2018

Employee engagement5.1.5

Employment5.1.6


Informatics 11,033 10,949 10,517

Personal Health 22,530 23,170 22,471

Other 13,614 14,075 17,031

Continuing operations 70,968 73,951 77,400

Discontinued operations 43,764

Philips Group 114,731 73,951 77,400

Consolidation changes:

Acquisitions 163 1,812 331

Divestments (571) (332) (107)

Changes in Discontinued

operations 753 (43,763)

Other changes 1,427 1,502 3,225

Balance as of December 31 114,731 73,951 77,400

North America 19,828 20,937 21,703

Other mature geographies 3,695 3,962 4,236

Mature geographies 44,180 45,954 47,338


Continuing operations 70,968 73,951 77,400

Discontinued operations 43,764

Philips Group 114,731 73,951 77,400

10 8 9

1616

17

74 76 74

'16 '17 '18

Unfavorable

Neutral

Favorable

2016 2017 2018

Diagnosis & Treatment 23,791 25,757 27,381

2016 2017 2018

Balance as of January 1 112,959 114,731 73,951

2016 2017 2018

Western Europe 20,657 21,055 21,399



Employee turnover

In 2018, employee turnover amounted to 14.2%, of

which 8.6% was voluntary, compared to 13.6% (8.2%

voluntary) in 2017. The slightly higher turnover in 2018

reflects the high demand for talent in the current

economic circumstances. External benchmarks show

that we remain well below employee turnover versus

similar-sized companies and are reasonably successful

in the retention of our employees.

With our focus on increasing gender diversity in

leadership positions, we have been able to reduce

voluntary female executive turnover from 12.9% in 2017

to 8.8% in 2018.

Philips GroupEmployee turnover in %2018

Philips GroupVoluntary turnover in %2018

We believe that businesses have the responsibility to

respect human rights and the ability to contribute to

positive human rights impacts. We have taken initiatives

to ensure that human rights are upheld across our own

operations and value chain.

In 2018, we published our Human Rights Policy,

reaffirming our commitment to support and respect

human rights as set out in the International Bill of

Human Rights and the International Labor

Organization’s Declaration on Fundamental Principles

and Rights at Work. In accordance with our policy, we

initiated our first country-specific Human Rights Impact

Assessment, and deepened our human rights due

diligence process by engaging with internal and

external stakeholders to identify the human rights areas

of severe impact and most vulnerable groups. The result

is presented in our first Human Rights Report, which

also contains more detailed information regarding our

progress.

The Philips General Business Principles (GBP)

incorporate and represent the fundamental principles

by which all Philips businesses and employees around

the globe must abide. They set the minimum standard

for business conduct, both for individual employees and

for the company and our subsidiaries. Our GBP also

serve as a reference for the business conduct we expect

from our business partners and suppliers.

Translations of the GBP text are available in 32

languages, allowing almost every employee to read the

GBP in their native language. Detailed underlying

policies, manuals, training, and tools are in place to give

employees practical guidance on how to apply and

uphold the GBP in their daily work environments.

Details can be found at: www.philips.com/gbp.

In 2018, a total of 438 concerns were reported via the

Philips Ethics Line and through our network of GBP

Compliance Officers. The previous reporting period

(2017) saw a total of 382 concerns, resulting in an

increase of 14% in the number of reports.

This is a continuation of the upward trend reported

since 2014, the year in which Philips updated its General

Business Principles and deployed a strengthened global

communication campaign. We believe this trend

remains in line with our multi-year efforts to encourage

our employees to speak up, in combination with a

growing workforce.

More information on the Philips GBP can be found in

Risk management, of the Annual Report 2018. The

results of the monitoring measures in place are given in

General Business Principles, of the Annual Report 2018

At Philips, we strive for an injury-free and illness-free

work environment. As of 2016, the Total Recordable

Cases (TRC) rate is defined as a Key Performance

Indicator (KPI). A TRC is a case where an injured

employee is unable to work for one or more days, has

medical treatment, or sustains an industrial illness. We

set yearly TRC targets for the company, Business

Groups and industrial sites.

We recorded 198 TRCs in 2018, a 15% improvement

compared to 234 in 2017. While our workforce grew

further in 2018, the TRC rate decreased from 0.36 per

hundred FTEs in 2017 to 0.28 in 2018.

In 2018 we recorded 91 Lost Workday Injury Cases

(LWIC). These are occupational injury cases where an

injured person is unable to work for one or more days

after the injury. This represents a 19% decrease

compared with 113 in 2017. The LWIC rate decreased to

0.13 per 100 FTEs in 2018, compared with 0.17 in 2017.

The number of Lost Workdays caused by injuries

increased by 480 days (12%) to 4,650 days in 2018,

mainly caused by longer recovery periods related to a

limited number of incidents.

For more information on Health and Safety, please refer

to Health and Safety performance, of the Annual Report

2018

In organizing ourselves around customers and markets,

we conduct dialogues with our stakeholders in order to

explore common ground for addressing societal

challenges, building partnerships and jointly developing

supporting ecosystems for our innovations around the

world. An overview of stakeholders and topics

Male 16.8 12.2 12.1 14.5 13.8

Philips Group 16.2 12.9 11.9 15.4 14.2

Male 10.4 7.4 6.0 3.5 8.3

Philips Group 9.7 8.1 6.2 4.5 8.6

Human rights5.1.7

General Business Principles5.1.8

Health and Safety5.1.9

Working with stakeholders5.1.10

Staff

Pro-

fes-

sionals

Man-

age-

ment

Ex-

ecu-

tives Total

Female 15.6 14.4 11.4 19.1 14.9

Staff

Pro-

fes-

sionals

Man-

age-

ment

Ex-

ecu-

tives Total

Female 8.8 9.6 6.8 8.8 9.1



https://www.philips.com/a-w/about/sustainability/downloads.html

http://taxxoreditorproduction:4812/www.philips.com/gbp

discussed is provided in Sustainability statements, of

the Annual Report 2018.

For more information on our stakeholder engagement

activities in 2018, please refer to Stakeholder

engagement, of the Annual Report 2018.

Philips’ mission to improve people’s lives applies

throughout our value chain. Since 2003 we have

dedicated supplier sustainability programs as part of

our sustainability strategy. We have a direct business

relationship with approximately 4,900 product and

component suppliers and 19,000 service providers. In

many cases the sustainability issues deeper in our

supply chain require us to intervene beyond tier 1 of the

chain.

Supplier sustainability strategy

Managing our large and complex supply chain in a

socially and environmentally responsible way requires a

structured and innovative approach while being

transparent and engaging with a wide variety of

stakeholders. Insights gained through our regular

stakeholder engagement process are used as an input

to manage our supplier sustainability strategy. At

present, our programs focus on compliance with our

policies, improvement of suppliers’ sustainability

performance, responsible sourcing of minerals, and

circular procurement practices.

Please refer to Supplier indicators, of the Annual Report

2018 and to the Philips supplier sustainability website

for more details on the Philips supplier sustainability

program.

In 2016 we launched our new five-year sustainability

program, ‘Healthy people, Sustainable planet’,

addressing both social and environmental challenges

and including associated targets to be achieved by

2020.

Besides our social impact, we have an environmental

impact through our global operations, but even more so

through our products and solutions. This is our

contribution to SDG 12 (“to ensure sustainable

consumption and production patterns”) and to SDG 13

("take urgent action to combat climate change and its

impacts").

In this Environmental performance section an overview

is given of the most important environmental

parameters of the 'Healthy people, Sustainable planet'

program. Details can be found in the Sustainability

statements, of the Annual Report 2018.

Environmental impactPhilips has been performing Life-Cycle Assessments

(LCAs) since 1990. These assessments provide insight

into the environmental impacts of our products from

cradle to grave. These insights are used to steer our

EcoDesign efforts and to grow our Green Solutions

portfolio. As a logical next step we have measured our

environmental impact on society at large via a so-called

Environmental Profit & Loss (EP&L) account, which

includes the hidden environmental costs associated

with our activities and products. It supports the direction

of our 'Healthy people, Sustainable planet' program by

providing insights into the main environmental hotspots

and innovation areas to reduce the environmental

impact of our products and solutions.

The EP&L account is based on LCA methodology, in

which the environmental impacts are expressed in

monetary terms using conversion factors developed by

CE Delft. These conversion factors are subject to further

refinement and are expected to change over time. We

used expert opinions and estimates for some parts of

the calculations. The figures reported are Philips’ best

possible estimates. As we gain new insights and retrieve

more and better data, we may enhance the

methodology, use cases and accuracy of results in the

future. For more information we refer to our

methodology report.

An important learning that we derived from the first

EP&L is that, in addition to the conversion factors, also

the definition of the use case scenarios has a significant

impact on the result, especially for consumer products.

It is our aim to look into the feasibility of standardizing

the use cases and calculation of the yearly energy

consumption.

The current EP&L account only includes the hidden

environmental costs. It does not yet include the benefits

to society that Philips generates by improving people’s

lives through our products and solutions. We have a

well-established methodology to calculate the number

of lives we positively touch with our products and

solutions. It is our aim to look into valuing these societal

benefits in monetary terms as well and include them in

our future EP&L account. We started to work on the

latter in 2018.

Supplier sustainability5.1.11

Environmental performance5.2



https://www.philips.com/content/corporate/en_AA/about/company/suppliers/supplier-sustainability.html/

http://www.cedelft.eu/en/publications/2012/environmental-pricing-manual-2017

https://www.philips.com/c-dam/corporate/about-philips/sustainability/downloads/ecovision-methodologies/EPL-Account-methodology-2017.pdf

Results 2018

In 2018, Philips had an environmental impact (loss) of EUR 7.5 billion, which is a 4% increase compared to the impact

reported in 2017 (EUR 7.2 billion), driven by comparable sales growth*) of 5%. The main environmental impact, 87% of the

total, is related to the usage of our products, which is due to electricity consumption. Particulate matter formation and

climate change are the main environmental impacts, accounting for 43% and 28% respectively of the total impact. The

environmental costs include the environmental impact of the full lifetime of the products that we put on the market in

2018, e.g. 7 years of usage in the case of a vacuum cleaner or 10 years in the case of a medical system. As we grow our

portfolio of Green Products and Solutions, we expect the environmental impact to reduce.

In 2018, we included packaging materials in the EP&L, but this did not have a material impact (EUR 22 million). Of the total

2018 impact, EUR 175 million (2%) is directly caused by Philips’ own operations, mainly driven by outbound logistics.

Compared to EUR 205 million in 2017, this is a 15% reduction, mainly due to the shift to energy from renewable sources in

line with our ambition to become carbon-neutral in our operations by 2020.

The environmental costs have been positively influenced by our EcoDesign efforts to increase the energy efficiency of our

products. Our supply chain currently has an environmental impact of some EUR 792 million, which is 11% of our total

environmental impact. The main contributors are the electronic components, cables and steel used in our products.

Through our Circular Economy and Supplier Sustainability programs we will continue to focus on reducing the

environmental impact caused by the materials we source and apply in our products.

In order to deliver on our carbon neutrality commitment we have set ambitious reduction targets. In 2018, our 2020-2040

targets (including the use phase of our products) have been approved by the Science Based Targets initiative – a

collaboration between the CDP (formerly Carbon Disclosure Project), the United Nations Global Compact (UNGC), the

World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) aimed at driving ambitious corporate climate

action. The approval confirms that Philips’ long-term targets are in line with the level of decarbonization required to keep

the global temperature increase below 2°C, and we are pleased to be the first health technology company to have

obtained this approval.


*)

Societal impact 5.2


https://www.philips.com/a-w/about/news/archive/standard/news/press/2018/20181206-philips-sets-new-co2-emission-targets-for-the-2020-2040-period-approved-by-the-science-based-targets-initiative.html

Green Innovation is the Research & Development spend

related to the development of new generations of

Green Products and Solutions and Green Technologies.

Sustainable Innovation is the Research & Development

spend related to the development of new generations

of products and solutions that address the United

Nations’ Sustainable Development Goals 3 (“to ensure

healthy lives and promote well-being for all at all ages”)

or 12 (“to ensure sustainable consumption and

production patterns”). With regard to Sustainable

Innovation spend, Philips set a target of EUR 7.5 billion

(cumulative) for the period 2016-2020 as part of the

‘Healthy people, Sustainable planet’ program.

In 2018, Philips invested EUR 228 million in Green

Innovation and some EUR 1.4 billion in Sustainable

Innovation.

Philips GroupGreen Innovation per segment in millions of EUR2016-2018


Philips develops innovative diagnosis and treatment

solutions that support precision diagnosis and effective,

minimally invasive interventions and therapy, while

respecting the boundaries of natural resources.

Investments in Green Innovation in 2018 amounted to

EUR 101 million, broadly in line with 2017. All Philips

Green Focal Areas are taken into account as we aim to

reduce environmental impact over the total lifecycle.

Energy efficiency is an area of focus, especially for our

large imaging systems such as MRI. Philips also pays

particular attention to enabling upgrading pathways, so

our customers can benefit from enhancements in

workflow, dose management and imaging quality with

the equipment they already own. Our Diagnosis &

Treatment businesses actively support a voluntary

industry initiative to improve the energy efficiency of

medical imaging equipment. Moreover, we are actively

partnering with multiple leading care providers to look

together for innovative ways to reduce the

environmental impact of healthcare, for example by

maximizing energy-efficient use of medical equipment

and optimizing lifecycle value. Additionally, Philips aims

to close the loop on all large medical equipment that

becomes available to us by the end of 2020, and to

extend circular practices to all medical equipment by

2025. To achieve this target, we will actively drive trade-

ins in markets where de-install, trade-in and reverse

logistics capabilities are in place, and build these

capabilities in countries that do not yet have them.


Philips’ connected health IT solutions integrate, collect,

combine and deliver quality data for actionable insights

to help improve access to quality care, while respecting

the boundaries of natural resources. It is our belief that

well-designed e-health solutions can reduce the travel-

related carbon footprint of healthcare, increase

efficiency in hospitals, and improve access to care and

outcomes. Investments in Green Innovation in 2018

amounted to EUR 36 million, in line with previous years.

Some large Green Innovation projects will deliver new

green patient monitors and ventilators in 2019, with

lower environmental footprints reflecting all the Philips

Green Focal Areas. Energy efficiency and material

reduction are the main areas of focus.


The continued high level of R&D investments at our

Personal Health businesses is also reflected in the

Green Innovation spend, which amounted to EUR 86

million in 2018, compared with EUR 91 million in 2017.

Green Innovation spend in 2017 included a sizeable

project in Oral Healthcare, resulting in a series of new

Green Products in 2018. The Personal Health businesses

continued their work on improving the energy efficiency

of their products, closing the materials loop (e.g. by

using recycled materials in products and packaging)

and the voluntary phase-out of polyvinyl chloride

(PVC), brominated flame retardants (BFR), Bisphenol A

(BPA) and phthalates from, among others, food contact

products. Mother & Child Care introduced a reusable

sterilization box for soothers, eliminating the need for

separate packaging. In our OneBlade shaver range,

further progress was made in transitioning our

packaging to include recycled materials.

Other

The segment Other invested EUR 5 million in Green

Innovation, spread over projects focused on global

challenges relating to water, air, energy, food, Circular

Economy, and access to affordable healthcare. One

example is the Contrast agent-free project, which is

aimed at enhancing MRI imaging applications in

oncology by eliminating the use of external

Gadolinium-based contrast agent. This is expected to

have large benefits in terms of patient management,

safety, access, healthcare and environmental cost.

Circular Economy

For a sustainable world, the transition from a linear to a

circular economy is essential. A circular economy aims

to decouple economic growth from the use of natural

resources and ecosystems by using these resources

more effectively. It is a driver of innovation in the areas

of material, component and product re-use, as well as

new business models such as system solutions and

services. At Philips, we have set ambitious targets to

Green Innovation5.2.1

277

233 22810

10 538

33 36

133

99101

96 91 86

'16 '17 '18

Other

Connected Care &Health Informatics

Diagnosis & Treatment

Personal Health



guide this journey. By 2020, we want 15% of our

revenues to come from circular products and services,

and we want to send zero waste to landfill in our own

operations. At the beginning of 2018, we added a

pledge to take back and repurpose all the large medical

systems equipment (e.g. MRI and CT scanners) that our

customers are prepared to return to us, and to extend

those practices across our professional portfolio by

2025. In 2018, after pilot projects in Italy and Greece, we

successfully launched the roll-out of a global program

to achieve our ambitious circular economy goal,

together with metrics to monitor progress.

For more information on our Circular Economy activities

and the progress towards targets in 2018, please refer to

Circular Economy, of the Annual Report 2018.

Green Revenues are generated through products and

solutions which offer a significant environmental

improvement in one or more Green Focal Areas: Energy

efficiency, Packaging, Hazardous substances, Weight,

Circularity, and Lifetime reliability. Green Revenues

increased to EUR 11.5 billion in 2018, or 63.7% of sales

(60.2% in 2017), thereby reaching a record level for

Philips.

Philips GroupGreen Revenues per segment in millions of EUR unless otherwisestated2016-2018

Through our EcoDesign process we aim to create

products and solutions that have significantly less

impact on the environment during their whole lifecycle.

Overall, the most significant improvements have been

realized in energy efficiency, although there was also

growing attention for hazardous substances and

recyclability in all segments in 2018, the latter driven by

our Circular Economy initiatives.


In 2018, our Diagnosis & Treatment businesses

maintained their Green Product and Solutions portfolio

with redesigns of various Green Products with further

environmental improvements. These products improve

patient outcomes, provide better value, and help secure

access to high-quality care, while reducing

environmental impact. A good example is BlueSeal

magnet technology, which is designed to reduce

lengthy and costly disruptions in MRI practice, and help

healthcare facilities transition to more productive and

sustainable helium-free operations. In 2018 we received

third-party confirmation that the 2017 Philips portfolio

of 1.5T MRI scanners leads the industry in terms of

energy efficiency according to the COCIR SRI

methodology.


Our Connected Care & Health Informatics businesses

maintained their Green Product and Solutions portfolio

in 2018.


Our Personal Health businesses focus on Green

Products and Solutions which meet or exceed our

minimum requirements in the areas of energy

consumption, packaging, and substances of concern.

Green Revenues in 2018 amounted to 62% of total

sales, compared to 58% in 2017. All our new consumer

Green Products with rechargeable batteries (like

toothbrushes, shavers, and grooming products)

outperform the world’s most stringent energy efficiency

norm set by the US Federal government. With the

introduction of the new Philips Sonicare DiamondClean

toothbrush the Green Revenue percentage in the Oral

Healthcare portfolio increased significantly, to over 88%.

We continue to make steady progress in developing

PVC/BFR-free products. More than 74% of our

consumer product sales consist of PVC/BFR-free

products, with the exception of the power cords, for

which there are not yet economically viable alternatives

available. In 2018 we introduced the PVC- and BFR-free

SpeedPro Max vacuum cleaner. In the remaining 26% of

consumer product sales, PVC/BFR has already been

phased out to a significant extent, though not yet

entirely.

Philips’ Sustainable Operations programs focus on the

main contributors to climate change, recycling of waste,

reduction of water consumption, and reduction of

emissions. Full details can be found in Sustainability

statements, of the Annual Report 2018.

Carbon footprint and energy efficiency

Philips has committed to becoming 100% carbon-

neutral in our operations and sourcing all our electricity

usage from 100% renewable sources by 2020 as our

commitment to SDG 13.

Philips reports its climate performance to CDP (formerly

known as the Carbon Disclosure Project), a global NGO

that assesses the greenhouse gas (GHG) emission

performance and management of reporting companies.

For the sixth year in a row we received the Climate

Leadership (A) score for our performance in 2017. In

order to deliver on the carbon neutrality commitment

we have set ambitious reduction targets.

Green Revenues5.2.2

Sustainable Operations5.2.3

10,19110,706

11,545

58.5%60.2%

63.7%

1,4421,373

1,769

4,7985,096

5,332

3,951 4,237 4,444

'16 '17 '18

As a % of sales

Connected Care &Health Informatics

Diagnosis & Treatment

Personal Health



In 2018, our greenhouse gas emissions resulted in 766

kilotonnes of carbon dioxide-equivalent (CO2-e), but

because of our carbon neutrality program, some of our

emissions have been compensated via carbon offsets,

resulting in a total of 436 kilotonnes carbon dioxide-

equivalent (CO2-e).

Philips reports all its emissions in line with the

Greenhouse Gas Protocol (GHGP) as further described

in Sustainability statements, of the Annual Report 2018.

Philips GroupNet operational carbon footprint in kilotonnes CO2 -equivalent2014 - 2018

In 2018, our operational carbon intensity (in tonnes

CO2e/EUR million sales) improved by 11%, even as our

company recorded 5% comparable sales growth*). This

still excludes the acquired carbon offsets. As part of our

‘Healthy people, Sustainable planet’ program we are

continuing our efforts to decouple economic growth

from our environmental impact.

The significant reductions in our scope 2 (indirect)

emissions are mainly driven by our increased global

renewable electricity share from 79% in 2017 to 90% in

2018.

All our US operations were powered by renewable

electricity from the Los Mirasoles wind farm in 2018. In

addition, the Krammer and Bouwdokken wind farms in

the Dutch province of Zeeland, with whom we closed

long-term contracts through our renewable electricity

purchasing consortium with AkzoNobel, DSM and

Google, started to deliver wind energy. The two Dutch

wind farms will power all our operations in the

Netherlands in 2019. Combined with the Los Mirasoles

wind farm this covers some 52% of our total electricity

demand.

Combined with the achieved energy reductions, this led

to a 56% carbon reduction in our electricity

consumption (scope 2) in 2018 compared to 2017.

Our business travel emissions increased by 2%

compared to 2017, mainly due to an increase in air travel

over shorter distances (<4,000 km) where the CO2-e

per km are higher compared to long-haul air travel,

combined with higher DEFRA emission factors for air

travel. The emissions resulting from our lease cars

decreased by 6% and the emissions from rental cars

remained unchanged compared to 2017. In order to

further decrease our business travel emissions we will

continue to promote video conferencing and online

collaboration as an alternative to travel, as well as

promoting alternative modes of transport and

electrifying our lease fleet.

As a result of our airfreight reduction program, we

recorded a decrease of 9% in our logistics operations

compared to 2017. Air freight shipments decreased by

19%, ocean freight increased by 32%, and road transport

remained unchanged.

In 2017, we kicked off our carbon neutrality program by

compensating 220 kilotonnes of carbon emissions. In

2018, we increased this to 330 kilotonnes, equivalent to

the annual uptake of approximately 9 million medium-

sized oak trees. This covers the total emissions of our

direct emissions in our sites, all our business travel

emissions and all our ocean and parcel shipments

within logistics. We do so by financing carbon reduction

projects in emerging regions that have a strong link with

SDG 3 and SDG 12.

We are investing in several carbon emission reduction

projects to gradually drive down our emissions to zero

by 2020. We have selected projects in emerging regions

that, in addition to generating emission reductions, also

drive social, economic and additional environmental

progress for the communities in which they operate,

such as:

Providing access to safe drinking water while

reducing wood consumption

These carbon emission reduction projects will provide

millions of liters of safe drinking water in Uganda and

Ethiopia and will reduce the mortality risk from water-

borne diseases. Additionally, less wood will be required

for boiling water, leading to less indoor air pollution and

slowing down the deforestation rate.

Fighting against respiratory diseases and

deforestation by means of clean cookstoves

By financing highly efficient cookstoves in Kenya and

Uganda, less wood will be required for cooking, leading

to lower carbon emissions, a reduction in diseases

caused by indoor air pollution, and a lower

deforestation rate in these regions.

Providing access to clean energy while improving

health and education

This project will reduce the demand-supply gap in the

Dewas region in India and will provide renewable

energy to more than 50,000 households. The project

will also provide a mobile medical unit in 24 villages,

giving diagnosis and medicines free of charge twice a

month. Additional funding will be provided for

educational programs and improved sanitation facilities

in five local schools in order to maximize the social

impact.

743 757821

627

436

2014 2015 2016 2017 2018

Net operationalcarbon footprint



Philips GroupOperational carbon footprint by scope in kilotonnes CO2-equivalent2014-2018

During 2018, the applied emission factors used to

calculate our operational carbon footprint have been

updated with the latest DEFRA (UK Department for

Environment, Food & Rural Affairs) 2018 emission

factors. Philips reports all its emissions in line with the

Greenhouse Gas Protocol (GHGP) as further described

in Data definitions and scope, of the Annual Report

2018.

Philips GroupRatios relating to carbon emissions and energy use2014-2018

Water

Total water intake in 2018 was 891,000 m3, comparable

to 2017. Personal Health, which consumes 60% of total

water usage, recorded a 7% increase. The increase was

mainly due to production volume increases at two

manufacturing sites in Asia. Diagnosis & Treatment and

Connected Care & Health Informatics showed a

decrease of 8% and 13% respectively.

Philips GroupWater intake in thousands of m3

2014-2018

In 2018, 98% of water was purchased and 2% was

extracted from groundwater wells.

Waste

In 2018, our manufacturing sites generated 24.5

kilotonnes of waste, comparable to 2017. The Personal

Health businesses contributed 61% of total waste,

Diagnosis & Treatment businesses 34%, and Connected

Care & Health Informatics businesses 5%.

Philips GroupTotal waste in kilotonnes2014 - 2018

Total waste consists of waste that is delivered for

landfill, incineration or recycling (including re-use). Our

sites are addressing both the recycling percentage as

well as waste sent to landfill as part of the ‘Healthy

people, Sustainable planet’ program. Materials

delivered for recycling via an external contractor

amounted to 21 kilotonnes, which equals 84% of total

waste, a significant increase compared to 2017 (80%). Of

the 16% remaining waste, 79% comprised non-

hazardous waste and 21% hazardous waste. Our Zero

Waste to Landfill KPI excludes one-time-only waste

and waste delivered to landfill due to regulatory

requirements. According to this definition, in 2018 we

reported 1.7 kilotonnes of waste sent to landfill. 19 out of

our 36 industrials sites achieved Zero Waste to Landfill

status.

Philips GroupIndustrial waste delivered for recycling in %2018

Scope 2 (market-

based) 109 106 121 58 26

Scope 2

(location-based) 210 212 252 225 227

Scope 3 594 612 658 751 700

Total (scope 1,2

(market-based),

and 3) 743 757 821 847 766

Emissions

compensated by

carbon offset

projects 220 330

Net operational

carbon emissions 743 757 821 627 436

Operational CO2

efficiency in tonnes

CO2-equivalent per

million EUR sales 53.36 46.58 48.48 47.64 42.27

Operational energy

use in terajoules 5,747 5,639 5,526 4,858 5,118

Operational energy

efficiency in terajoules

per million EUR sales 0.41 0.35 0.33 0.27 0.28

Diagnosis & Treatment 392 268 269 312 288

Connected Care &

Health Informatics 74 94 81 80 70

Philips Group 1,051 976 963 888 891

Diagnosis & Treatment 6.8 8.0 9.2 8.3 8.4

Connected Care &

Health Informatics 1.2 1.4 1.4 1.2 1.2

Philips Group 21.1 23.2 24.9 24.6 24.5

Paper

Metal

Wood

Plastics

Chemical waste

General

Demolition scrap

Other

30

19

15

11

8

5

4

8

2014 2015 2016 2017 2018

Scope 1 40 39 42 38 40

2014 2015 2016 2017 2018

Operational CO2

emissions in kilotonnes

CO2-equivalent 743 757 821 847 766

2014 2015 2016 2017 2018

Personal Health 585 614 613 496 533

2014 2015 2016 2017 2018

Personal Health 13.1 13.8 14.3 15.1 14.9



Philips included new reduction targets for the

substances that are most relevant for its businesses in

its ‘Healthy people, Sustainable planet’ program. In

order to provide comparable information at Group level,

please find the summary of the emissions of the

formerly targeted substances below. Emissions of

restricted substances were again zero in 2018. The level

of emissions of hazardous substances decreased from

5,243 kilos in 2017 to 3,363 kilos in 2018 (-36%), mainly

driven by changes in the manufacturing process

resulting in lower Styrene emissions and changes in the

product mix in the Personal Health businesses.

Philips GroupRestricted and hazardous substances in kilos2014-2018

For more details on emissions from substances, please

refer to Sustainable Operations, of the Annual Report

2018.

Hazardous

substances 24,712 22,394 10,496 5,243 3,363


*)

2014 2015 2016 2017 2018

Restricted

substances 20 18 1 - -



Supervisory Board

The Supervisory Board supervises the policies of the

Board of Management and Executive Committee and

the general course of affairs of Koninklijke Philips N.V.

and advises the executive management thereon. The

Supervisory Board, in the two-tier corporate structure

under Dutch law, is a separate and independent

corporate body.

The Rules of Procedure of the Supervisory Board are

published on the company’s website. For details on the

activities of the Supervisory Board, see Supervisory

Board report, of the Annual Report 2018 and

Supervisory Board, of the Annual Report 2018.

Jeroen van der Veer 2) 3)

Born 1947, Dutch

Chairman

Chairman of the Corporate Governance and

Nomination & Selection Committee

Member of the Supervisory Board since 2009; third

term expires in 2021

Former Chief Executive and Non-executive Director of Royal Dutch

Shell and currently Chairman of the Supervisory Board of Royal

Boskalis Westminster N.V. Member of the Supervisory Board of

Equinor ASA. Chairman of the Supervisory Council of Delft

University of Technology. Chairman of Het Concertgebouw Fonds

(foundation). Also a senior advisor at Mazarine Energy B.V

Neelam Dhawan 1)

Born 1959, Indian

Member of the Supervisory Board since 2012; second


Head India Advisory Board, IBM. Non-Executive Board Member of

ICICI Bank Limited and Yatra Online Inc. Former Vice President,

Global Sales and Alliance - Asia Pacific & Japan, Hewlett Packard

Enterprise.

Orit Gadiesh 1)

Born 1951, Israeli/American



Currently Chairwoman of Bain & Company and member of the

Foundation Board of the World Economic Forum (WEF) and

member of the United States Council of Foreign Relations.

Marc HarrisonBorn 1964, American

Member of the Supervisory Board since 2018; first


Currently President and Chief Executive Officer of Intermountain

Healthcare. Former Chief of International Business Development

for Cleveland Clinic and Chief Executive Officer of Cleveland Clinic

Abu Dhabi.

Christine Poon 2) 3) 4)

Born 1952, American

Vice-Chairwoman and Secretary

Chairwoman of the Quality & Regulatory Committee



Former Vice-Chairwoman of Johnson & Johnson’s Board of

Directors and Worldwide Chairwoman of the Pharmaceuticals

Group and former dean of Ohio State University’s Fisher College of

Business. Currently member of the Board of Directors of

Prudential, Regeneron and Sherwin Williams.

Heino von Prondzynski 2) 3) 4)

Born 1949, German/Swiss

Chairman of the Remuneration Committee



Former member of the Corporate Executive Committee of the F.

Hofmann-La Roche Group and former CEO of Roche Diagnostics.

Currently Chairman of the Supervisory Board of Epigenomics AG

and Quotient Ltd, and member of the Supervisory Board of The

Binding Site Group Ltd.

David Pyott 1) 4)

Born 1953, British/American

Member of the Supervisory Board since 2015;

first term expires in 2019

Former Chairman and Chief Executive Officer of Allergan, Inc.

Currently Lead Director of Avery Dennison Corporation. Member of

the Board of Directors of Alnylam Pharmaceuticals Inc., BioMarin

Pharmaceutical Inc. and privately held Rani Therapeutics, and

Chairman of Bioniz Therapeutics. Also Deputy Chairman of the

Governing Board of London Business School, member of the Board

of Trustees of California Institute of Technology, President of the

International Council of Ophthalmology Foundation and member

of the Advisory Board of the Foundation of the American Academy

of Ophthalmology.

Paul StoffelsBorn 1962, Belgian

Member of the Supervisory Board since 2018; first


Currently Vice Chair of the Executive Committee and Chief

Scientific Officer at Johnson & Johnson. Previously, Worldwide

Chair of Pharmaceuticals at Johnson & Johnson, CEO of Virco and

Chairman of Tibotec.

Jackson Tai 1) 4)

Born 1950, American

Chairman of Audit Committee



Former Vice-Chairman and CEO of DBS Group and DBS Bank Ltd

and former Managing Director at J.P. Morgan & Co. Incorporated.

Currently a member of the Boards of Directors of Eli Lilly and

Company, HSBC Holdings PLC, and Mastercard. Also Non-

Executive Director of Canada Pension Plan Investment Board.

6

1) member of the Audit Committee2) member of the Remuneration Committee3) member of the Corporate Governance andNomination & Selection Committee4) member of the Quality & Regulatory Committee

Supervisory Board 6


Other information

In this Annual Report Philips presents certain financial

measures when discussing Philips’ performance that are

not measures of financial performance or liquidity

under IFRS (‘non-IFRS’). These non-IFRS measures

(also known as non-GAAP or alternative performance

measures) are presented because management

considers them important supplemental measures of

Philips’ performance and believes that they are widely

used in the industry in which Philips operates as a

means of evaluating a company’s operating

performance and liquidity. Philips believes that an

understanding of its sales performance, profitability,

financial strength and funding requirements is

enhanced by reporting the following non-IFRS

measures:

• Comparable sales growth;

• Adjusted EBITA;

• Adjusted income from continuing operations

attributable to shareholders;

• Adjusted income from continuing operations

attributable to shareholders per common share (in

EUR) - diluted;

• Adjusted EBITDA;

• Free cash flow;

• Net debt : group equity ratio; and

• Comparable order intake.

Non-IFRS measures do not have standardized

meanings under IFRS and not all companies calculate

non-IFRS measures in the same manner or on a

consistent basis. As a result, these measures may not be

comparable to measures used by other companies that

have the same or similar names. Accordingly, undue

reliance should not be placed on the non-IFRS

measures contained in this Annual Report and they

should not be considered as substitutes for sales, net

income, net cash provided by operating activities or

other financial measures computed in accordance with

IFRS.

This chapter contains the definitions of the non-IFRS

measures used in this Annual Report as well as

reconciliations from the most directly comparable IFRS

measures. The non-IFRS measures discussed in this

Annual Report are cross referenced to this chapter.

These non-IFRS measures should not be viewed in

isolation or as alternatives to equivalent IFRS measures

and should be used in conjunction with the most

directly comparable IFRS measures.

The non-IFRS financial measures presented are not

measures of financial performance or liquidity under

IFRS, but measures used by management to monitor

the underlying performance of Philips’ business and

operations and, accordingly, they have not been

audited or reviewed by Philips’ external auditors.

Furthermore, they may not be indicative of Philips’

future results and should not be construed as an

indication that Philips’ future results will be unaffected

by exceptional or non-recurring items.

Comparable sales growthComparable sales growth represents the period-on-

period growth in sales excluding the effects of currency

movements and changes in consolidation. As indicated

in Significant accounting policies, starting on page 0,

foreign currency sales and costs are translated into

Philips’ presentation currency, the euro, at the exchange

rates prevailing at the respective transaction dates. As a

result of significant foreign currency sales and currency

movements during the periods presented, the effects of

translating foreign currency sales amounts into euros

could have a material impact on the comparability of

sales between periods. Therefore, these impacts are

excluded when presenting comparable sales in euros

by translating the foreign currency sales of the previous

period and the current period into euros at the same

average exchange rates. In addition, the years

presented were affected by a number of acquisitions

and divestments, as a result of which various activities

were consolidated or deconsolidated. The effect of

consolidation changes has also been excluded in

arriving at the comparable sales. For the purpose of

calculating comparable sales, when a previously

consolidated entity is sold or control is lost, relevant

sales for that entity of the corresponding prior year

period are excluded. Similarly, when an entity is

acquired and consolidated, relevant sales for that entity

of the current year period are excluded.

Comparable sales growth is presented for the Philips

Group, operating segments and geographic clusters.

Philips’ believes that the presentation of comparable

sales growth is meaningful for investors to evaluate the

performance of Philips’ business activities over time.

Comparable sales growth may be subject to limitations

as an analytical tool for investors, because comparable

sales growth figures are not adjusted for other effects,

such as increases or decreases in prices or quantity/

volume. In addition, interaction effects between

currency movements and changes in consolidation are

not taken into account.

Reconciliation of non-IFRS information7.1

7

Other information 7


Philips GroupSales growth composition per segment in %2016 - 2018

Philips GroupSales growth composition per geographic cluster in %2016 - 2018

Diagnosis & Treatment 5.1 4.1 (2.4) 6.8

Connected Care & Health Informatics (2.5) 4.1 (1.3) 0.3

Personal Health (1.1) 4.4 0.0 3.3

Philips Group 1.9 4.2 (1.4) 4.7

2017 versus 2016


Connected Care & Health Informatics 0.2 1.9 1.1 3.2

Personal Health 3.0 1.9 0.7 5.6

Philips Group 2.1 1.9 (0.1) 3.9

2016 versus 2015


Connected Care & Health Informatics 4.5 0.1 (0.1) 4.5

Personal Health 5.2 2.0 0.0 7.2

Philips Group 3.7 1.1 0.1 4.9

Western Europe 4.9 0.4 (2.6) 2.7

North America (1.1) 4.4 (2.6) 0.7

Other mature geographies 10.8 4.1 (0.4) 14.5

Total mature geographies 2.5 3.1 (2.3) 3.3

Growth geographies 0.7 6.5 0.4 7.6

Philips Group 1.9 4.2 (1.4) 4.7

2017 versus 2016

Western Europe 1.2 1.1 0.5 2.8

North America 2.1 2.0 (1.4) 2.7

Other mature geographies (4.7) 2.6 (0.1) (2.2)

Total mature geographies 0.8 1.7 (0.6) 1.9


Philips Group 2.1 1.9 (0.1) 3.9

2016 versus 2015

Western Europe 2.2 1.9 0.2 4.3

North America 3.6 (0.4) (0.2) 3.0

Other mature geographies 8.9 (6.2) (0.4) 2.3

Total mature geographies 3.9 (0.5) (0.1) 3.3


Philips Group 3.7 1.1 0.1 4.9

nominal growth currency effects

consolidation

changes comparable growth

2018 versus 2017

nominal growth currency effects

consolidation

changes comparable growth

2018 versus 2017

Other information 7.1


Adjusted EBITAThe term Adjusted EBITA is used to evaluate the

performance of Philips and its segments. EBITA

represents Income from operations excluding

amortization and impairment of acquired intangible

assets and impairment of goodwill. Adjusted EBITA

represents EBITA excluding gains or losses from

restructuring costs, acquisition-related charges and

other items.

Restructuring costs are defined as the estimated costs

of initiated reorganizations, the most significant of

which have been approved by the Executive

Committee, and which generally involve the

realignment of certain parts of the industrial and

commercial organization.

Acquisition-related charges are defined as costs that

are directly triggered by the acquisition of a company,

such as transaction costs, purchase accounting related

costs and integration-related expenses.

Other items are defined as any individual item with an

income statement impact (loss or gain) that is deemed

by management to be both significant and incidental to

normal business activity. Other items may extend over

several quarters and are not limited to the same

financial year.

Philips considers the use of Adjusted EBITA appropriate

as Philips uses it as a measure of segment performance

and as one of its strategic drivers to increase

profitability through re-allocation of its resources

towards opportunities offering more consistent and

higher returns. This is done with the aim of making the

underlying performance of the businesses more

transparent.

Philips believes Adjusted EBITA is useful to evaluate

financial performance on a comparable basis over time

by factoring out restructuring costs, acquisition-related

charges and other incidental items which are not

directly related to the operational performance of

Philips Group or its segments.

Adjusted EBITA may be subject to limitations as an

analytical tool for investors, as it excludes restructuring

costs, acquisition-related charges and other incidental

items and therefore does not reflect the expense

associated with such items, which may be significant

and have a significant effect on Philips’ net income.

Adjusted EBITA margin refers to Adjusted EBITA divided

by sales expressed as a percentage.

Adjusted EBITA is not a recognized measure of financial

performance under IFRS. The reconciliation of Adjusted

EBITA to the most directly comparable IFRS measure,

Net income, for the years indicated is included in the

table below. Net income is not allocated to segments as

certain income and expense line items are monitored

on a centralized basis, resulting in them being shown on

a Philips Group level only.



Philips GroupReconciliation of Net income to Adjusted EBITA in millions of EUR unless otherwise stated2016 - 2018

Net Income 1,097

Discontinued operations, net of income taxes 213

Income tax expense 193

Investments in associates, net of income taxes 2

Financial expenses 264

Financial income (51)

Income from operations 1,719 600 179 1,045 (105)

Amortization of intangible assets 347 97 46 126 79

EBITA 2,066 696 225 1,171 (27)

Restructuring and acquisition-related charges 258 142 59 26 31

Other items 41 - 56 18 (33)

Adjusted EBITA 2,366 838 341 1,215 (28)

2017

Net Income 1,870

Discontinued operations, net of income taxes (843)







Impairment of goodwill 9 9

EBITA 1,787 543 250 1,211 (217)


Other items 50 22 31 (3)

Adjusted EBITA 2,153 716 372 1,221 (157)

2016

Net Income 1,491



Investments in associates, net of income taxes (11)



Income from operations 1,464 546 275 953 (310)



EBITA 1,707 594 322 1,092 (301)


Other items 120 (12) 132

Adjusted EBITA 1,921 631 324 1,108 (142)

Philips Group

Diagnosis &

Treatment

Connected Care

& Health

Informatics

Personal

Health Other

2018



Adjusted income from continuing operationsattributable to shareholdersThe term Adjusted income from continuing operations

attributable to shareholders represents income from

continuing operations less continuing operations non-

controlling interests, amortization and impairment of

acquired intangible assets, impairment of goodwill,

excluding gains or losses from restructuring costs and

acquisition-related charges, other items, adjustments to

net finance expenses, adjustments to investments in

associates and the tax impact of the adjusted items.

Shareholders refers to shareholders of Koninklijke

Philips N.V.

Restructuring costs, acquisition-related charges and

other items are all defined in the Adjusted EBITA section

above.

Net finance expenses are defined as either the financial

income or expense component of an individual item

already identified to be excluded as part of the

Adjusted income from continuing operations, or a

financial income or expense component with an income

statement impact (gain or loss) that is deemed by

management to be both significant and incidental to

normal business activity.

The Tax impact of the adjusted items is calculated using

the Weighted Average Statutory Tax Rate plus any

recurring tax costs or benefits.

Philips considers the use of Adjusted income from

continuing operations attributable to shareholders

appropriate as Philips uses it as the basis for the

Adjusted income from continuing operations

attributable to shareholders per common share (in EUR)

- diluted, a non-IFRS measure.


attributable to shareholders may be subject to

limitations as an analytical tool for investors, as it

excludes certain items and therefore does not reflect

the expense associated with such items, which may be

significant and have a significant effect on Philips’ net

income. Net income, for the years indicated is included

in the table below. Net income is not allocated to

segments as certain income and expense line items are

monitored on a centralized basis, resulting in them

being shown on a Philips Group level only.


attributable to shareholders is not a recognized

measure of financial performance under IFRS. The

reconciliation of Adjusted income from continuing

operations attributable to shareholders to the most

directly comparable IFRS measure, Net income, for the

years indicated is included in the table below.

Adjusted income from continuing operationsattributable to shareholders per commonshare (in EUR) - dilutedAdjusted income from continuing operations


- diluted is calculated by dividing the Adjusted income

from continuing operations attributable to shareholders

by the diluted weighted average number of shares (after

deduction of treasury shares) outstanding during the

period, as defined in Significant accounting policies,

starting on page 0, earnings per share section.

Philips considers the use of Adjusted income from


common share (in EUR) - diluted appropriate as it is a

measure that is useful when comparing its performance

to other companies in the HealthTech industry.

However, it may be subject to limitations as an

analytical tool for investors, as it uses Adjusted income

from continuing operations attributable to shareholders

which has certain items excluded.



- diluted is not a recognized measure of financial

performance under IFRS. The most directly comparable

IFRS measure, income from continuing operations


- diluted for the years indicated, is included in the table

below.



Philips GroupAdjusted income from continuing operations attributable to shareholders 1) in millions of EUR unless otherwise stated2016-2018

1) Shareholders refers to shareholders of Koninklijke Philips N.V.

Less: Discontinued operations, net of income taxes (660) (843) 213

Income from continuing operations 831 1,028 1,310

Less: Continuing operations Non-controlling interest (4) (11) (7)

Income from continuing operations attributable to shareholders 827 1,017 1,303

Adjustments for:

Amortization of acquired intangible assets 242 260 347


Restructuring costs and acquisition-related charges 94 316 258

Other items 120 50 41

Net finance expenses 94 57

Tax impact of adjusted items (225) (194) (365)

Adjusted Income from continuing operations attributable to shareholders 2) 1,153 1,459 1,643

Earnings per common share:

Income from continuing operations attributable to shareholders per common share

- diluted 0.89 1.08 1.39

Adjusted income from continuing operations attributable to shareholders 1) per

common share - diluted 1.24 1.54 1.76

2016 2017 2018

Net income 1,491 1,870 1,097



Adjusted EBITDAAdjusted EBITDA is defined as Income from operations

excluding amortization and impairment of intangible

assets, impairment of goodwill, depreciation and

impairment of property, plant and equipment,

restructuring costs, acquisition-related charges and

other items.

Philips understands that Adjusted EBITDA is broadly

used by analysts, rating agencies and investors in their

evaluation of different companies because it excludes

certain items that can vary widely across different

industries or among companies within the same

industry. Philips considers Adjusted EBITDA useful

when comparing its performance to other companies in

the HealthTech industry. However, Adjusted EBITDA

may be subject to limitations as an analytical tool

because of the range of items excluded and their

significance in a given reporting period. Furthermore,

comparisons with other companies may be complicated

due to the absence of a standardized meaning and

calculation framework. Our management compensates

for the limitations of using Adjusted EBITDA by using

this measure to supplement IFRS results to provide a

more complete understanding of the factors and trends

affecting the business rather than IFRS results alone. In

addition to the limitations noted above, Adjusted

EBITDA excludes items that may be recurring in nature

and should not be disregarded in the evaluation of

performance. However, we believe it is useful to exclude

such items to provide a supplemental analysis of

current results and trends compared to other periods.

This is because certain excluded items can vary

significantly depending on specific underlying

transactions or events. Also, the variability of such items

may not relate specifically to ongoing operating results

or trends and certain excluded items, while potentially

recurring in future periods and may not be indicative of

future results. A reconciliation from net income to

Adjusted EBITDA is provided below. Net income, for the

years indicated is included in the table below. Net

income is not allocated to segments as certain income

and expense line items are monitored on a centralized

basis, resulting in them being shown on a Philips Group

level only.



Philips GroupReconciliation of Net income to Adjusted EBITDA in millions of EUR2016 - 2018

2018

Net Income 1,097

Discontinued operations, net of income taxes 213






Depreciation, amortization and impairment of

assets 1,089 302 176 367 244


Other items 41 - 56 18 (33)

Adding back impairment of fixed assets

included in restructuring and acquisition-

related changes and other items (15) (7) (9) - 1

Adjusted EBITDA 3,093 1,036 462 1,456 139

2017

Net Income 1,870








assets 1,025 267 208 371 179



Other items 50 22 31 (3)



related changes and other items (86) (44) (34) (1) (7)

Adjusted EBITDA 2,832 884 502 1,456 (11)

2016

Net Income 1,491



Investments in associates, net of income taxes (11)



Income from operations 1,464 546 275 953 (310)


assets 976 229 184 385 178



Other items 120 (12) 132



related changes and other items (42) (4) (4) (0) (34)

Adjusted EBITDA 2,613 808 458 1,353 (7)

Philips Group

Diagnosis &

Treatment

Connected

Care & Health

Informatics

Personal

Health Other



Free cash flowFree cash flow is defined as net cash flows from operating activities minus net capital expenditures. Net capital

expenditures are comprised of the purchase of intangible assets, expenditures on development assets, capital

expenditures on property, plant and equipment and proceeds from sales of property, plant and equipment.

Philips discloses free cash flow as a supplemental non-IFRS financial measure, as Philips believes it is a meaningful

measure to evaluate the performance of its business activities over time. Philips understands that free cash flow is

broadly used by analysts, rating agencies and investors in assessing its performance. Philips also believes that the

presentation of free cash flow provides useful information to investors regarding the cash generated by the Philips

operations after deducting cash outflows for purchases of intangible assets, capitalization of product development,

expenditures on development assets, capital expenditures on property, plant and equipment and proceeds from disposal

of property, plant and equipment. Therefore, the measure gives an indication of the long-term cash generating ability of

the business. In addition, because free cash flow is not impacted by purchases or sales of businesses and investments, it

is generally less volatile than the total of net cash provided by (used for) operating activities and net cash provided by

(used for) investing activities.

Free cash flow may be subject to limitations as an analytical tool for investors, as free cash flow is not a measure of cash

generated by operations available exclusively for discretionary expenditures and Philips requires funds in addition to

those required for capital expenditures for a wide variety of non-discretionary expenditures, such as payments on

outstanding debt, dividend payments or other investing and financing activities. In addition, free cash flow does not

reflect cash payments that may be required in future for costs already incurred, such as restructuring costs.

Philips GroupComposition of free cash flow in millions of EUR2016 - 2018

Net debt : group equity ratioNet debt : group equity ratio is presented to express the financial strength of Philips. Net debt is defined as the sum of

long- and short-term debt minus cash and cash equivalents. Group equity is defined as the sum of shareholders’ equity

and non-controlling interests. This measure is used by Philips Treasury management and investment analysts to evaluate

financial strength and funding requirements. This measure may be subject to limitations because cash and cash

equivalents are used for various purposes, not only debt repayment. The net debt calculation deducts all cash and cash

equivalents whereas these items are not necessarily available exclusively for debt repayment at any given time.

Philips GroupComposition of net debt to group equity in millions of EUR unless otherwise stated2016 - 2018

Net cash flows from operating activities 1,170 1,870 1,780

Net capital expenditures: (741) (685) (796)

Purchase of intangible assets (95) (106) (123)

Expenditures on development assets (301) (333) (298)

Capital expenditures on property, plant and equipment (360) (420) (422)

Proceeds from disposals of property, plant and equipment 15 175 46

Free cash flow 429 1,185 984

Short-term debt 1,585 672 1,394

Total debt 5,606 4,715 4,821


Net debt 3,272 2,776 3,132

Shareholders' equity 12,546 11,999 12,088

Non-controlling interests 907 24 29

Group equity 13,453 12,023 12,117

Net debt to group equity ratio 20:80 19:81 21:79

2016 2017 2018

2016 2017 2018

Long-term debt 4,021 4,044 3,427



Comparable order intakeComparable order intake is reported for equipment and software and is defined as the total contractually committed

amount to be delivered within a specified timeframe excluding the effects of currency movements and changes in

consolidation. Comparable order intake does not derive from the financial statements and thus a quantitative

reconciliation is not provided.

Philips uses comparable order intake as an indicator of business activity and performance. Comparable order intake is not

an alternative to revenue and may be subject to limitations as an analytical tool due to differences in amount and timing

between booking orders and revenue recognition. Due to divergence in practice, other companies may calculate this or a

similar measure (such as order backlog) differently and therefore comparisons between companies may be complicated.

Philips GroupOther financial data in millions of EUR unless otherwise stated2014-2018

1) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 56.2) Shareholders refers to shareholders of Koninklijke Philips N.V.

Five-year overview (condensed)

Philips GroupSustainability2014-2018

Due to factors such as acquisitions and divestments, the amounts, percentages and ratios are not directly comparable.

Five-year overview7.2

Nominal sales growth (2)% 16% 4% 2% 2%

Comparable sales growth 1) 0% 4% 5% 4% 5%

Free cash flow 1) 555 (154) 429 1,185 984

PPE - Capital expenditure for the year 528 575 575 551 546

Adjusted EBITA 1) 1,458 1,688 1,921 2,153 2,366

as a % of sales 10.0% 10.0% 11.0% 12.1% 13.1%

Adjusted income from continuing operations attributable to KPNV

shareholders 1) 2) 1,178 1,000 1,153 1,459 1,643

Adjusted income from continuing operations attributable to

shareholders per common share (in EUR) - diluted 1) 2) 1.28 1.08 1.24 1.54 1.76

Cash and cash equivalents 1,873 1,766 2,334 1,939 1,688

Net debt: group equity ratio 1) 17:83 25:75 20:80 19:81 21:79

Market capitalization at year-end 22,082 21,607 26,751 29,212 28,276

Green Revenues, as a % of total sales 56% 58% 60% 64%

Green Innovation, in millions of euros 241 277 233 228

Circular revenue 7% 9% 11% 12%

Operational carbon footprint, in kilotonnes CO2-equivalent 743 757 821 847 766

2014 2015 2016 2017 2018

2014 2015 2016 2017 2018

Lives improved, in billions (including Signify) 1.93 2.02 2.13 2.22 2.24



Philips GroupSelected financial data in millions of EUR unless otherwise stated2014-2018

1) During 2018, an error was identified in certain non-controlling interests and EPS calculations for 2016 and 2017 respectively. Reference is madeto the Significant accounting policies, starting on page 0.

Forward-looking statements

This document contains certain forward-looking

statements with respect to the financial condition,

results of operations and business of Philips and certain

of the plans and objectives of Philips with respect to

these items. Examples of forward-looking statements

include statements made about our strategy, estimates

of sales growth, future developments in Philips’ organic

business, the completion of acquisitions and

divestments and future Adjusted EBITA*). Forward-

looking statements can be identified generally as those

containing words such as “anticipates”, “assumes”,

“believes”, “estimates”, “expects”, “should”, “will”, “will

likely result”, “forecast”, “outlook”, “projects”, “may” or

similar expressions. By their nature, forward-looking

statements involve risk and uncertainty because they

relate to future events and circumstances and there are

many factors that could cause actual results and

developments to differ materially from those expressed

or implied by these forward-looking statements.

These factors include but are not limited to: global

economic and business conditions; political instability,

including developments within the European Union,

with adverse impact on financial markets; the successful

implementation of Philips’ strategy and the ability to

realize the benefits of this strategy; the ability to

develop and market new products; changes in

legislation; legal claims; changes in currency exchange

rates and interest rates; future changes in tax rates and

regulations, including trade tariffs; pension costs and

actuarial assumptions; changes in raw materials prices;

changes in employee costs; the ability to identify and

complete successful acquisitions, and to integrate those

acquisitions into the business, the ability to successfully

exit certain businesses or restructure the operations; the

rate of technological changes; cyber-attacks, breaches

of cybersecurity; political, economic and other

developments in countries where Philips operates;

industry consolidation and competition; and the state

of international capital markets as they may affect the

timing and nature of the disposal by Philips of its

remaining interests in Signify (formerly Philips Lighting).

As a result, Philips’ actual future results may differ

materially from the plans, goals and expectations set

forth in such forward-looking statements. For a

discussion of factors that could cause future results to

differ from such forward-looking statements, see also

Risk management, of the Annual Report 2018.

Sales 14,517 16,806 17,422 17,780 18,121

Income from operations 461 658 1,464 1,517 1,719

Financial income and expenses - net (294) (359) (442) (137) (213)

Income (loss) from continuing operations 260 160 831 1,028 1,310

Income (loss) from continuing operations attributable to shareholders 264 146 788 814 2

Income (loss) from discontinued operations 148 479 660 843 (213)

Net income (loss) 408 638 1,491 1,870 1,097

Net income (loss) attributable to shareholders 412 624 1,448 1,657 1,090

Total assets 28,317 30,943 32,270 25,315 26,019

Net assets 10,933 11,725 13,435 12,023 12,117

Debt 4,104 5,760 5,606 4,715 4,821

Provisions 4,517 4,243 3,606 2,059 2,151

Shareholders’ equity 10,832 11,607 12,546 11,999 12,088

Non-controlling interests 101 118 907 24 29

Weighted average shares outstanding:

basic 915,193 916,087 918,016 928,798 922,987

diluted 922,714 923,625 928,789 945,132 935,851

Amount of common shares outstanding at year-end 914,389 917,104 922,437 926,192 914,184

Basic earnings per common share:

Income (loss) from continuing operations attributable to shareholders 1) 0.28 0.17 0.90 1.10 1.41

Net income (loss) attributable to shareholders 0.45 0.70 1.58 1.78 1.18

Diluted earnings per common share:

Income (loss) from continuing operations attributable to shareholders 1) 0.28 0.17 0.89 1.08 1.39

Net income (loss) attributable to shareholders 0.45 0.70 1.56 1.75 1.16

Dividend distributed per common share 0.80 0.80 0.80 0.80 0.80

Total employees at year-end (FTEs) 113,678 112,959 114,731 73,951 77,400

Forward-looking statements andother information

7.3

2014 2015 2016 2017 2018



Third-party market share data

Statements regarding market share, including those

regarding Philips’ competitive position, contained in this

document, are based on outside sources such as

research institutes, industry and dealer panels in

combination with management estimates. Where

information is not yet available to Philips, those

statements may also be based on estimates and

projections prepared by outside sources or

management. Rankings are based on sales unless

otherwise stated.

Fair value information

In presenting the Philips Group’s financial position, fair

values are used for the measurement of various items in

accordance with the applicable accounting standards.

These fair values are based on market prices, where

available, and are obtained from sources that are

deemed to be reliable. Readers are cautioned that

these values are subject to changes over time and are

only valid at the balance sheet date. When quoted

prices or observable market values are not readily

available, fair values are estimated using valuation

models and unobservable inputs, which we believe are

appropriate for their purpose. Such fair value estimates

require management to make significant assumptions

with respect to future developments which are

inherently uncertain and may therefore deviate from

actual developments. Critical assumptions used are

disclosed in the financial statements. In certain cases,

independent valuations are obtained to support

management’s determination of fair values.

IFRS basis of presentation

The audited consolidated financial statements as of

December 31, 2018 and 2017, and for each of the years

in the three-year period ended December 31, 2018 have

been prepared in accordance with International

Financial Reporting Standards (IFRS) as endorsed by

the European Union (EU). All standards and

interpretations issued by the International Accounting

Standards Board (IASB) and the IFRS Interpretations

Committee effective year-end 2018 have been

endorsed by the EU, except that the EU did not adopt

certain paragraphs of IAS 39 applicable to certain

hedge transactions. Philips has no hedge transactions

to which these paragraphs are applicable.

Consequently, the accounting policies applied by

Philips also comply with IFRS as issued by the IASB.

Use of non-IFRS information

In presenting and discussing the Philips Group’s

financial position, operating results and cash flows,

management uses certain non-IFRS financial measures.

These non-IFRS financial measures should not be

viewed in isolation as alternatives to the equivalent

IFRS measure and should be used in conjunction with

the most directly comparable IFRS measures. Non-IFRS

financial measures do not have standardized meaning

under IFRS and therefore may not be comparable to

similar measures presented by other issuers. A

reconciliation of these non-IFRS measures to the most

directly comparable IFRS measures is contained in this

document. Reference is made in Reconciliation of non-

IFRS information, starting on page 56, of this report.

Statutory financial statements and management

report

The chapters Group financial statements and Company

financial statements contain the statutory financial

statements of the Company.

The introduction to the chapter Group financial

statements sets out which parts of this Annual Report

form the management report within the meaning of

Section 2:391 of the Dutch Civil Code (and related

Decrees).

Brominated flame retardants (BFR)

Brominated flame retardants are a group of chemicals

that have an inhibitory effect on the ignition of

combustible organic materials. Of the commercialized

chemical flame retardants, the brominated variety are

most widely used.

CO2-equivalent

CO2-equivalent or carbon dioxide equivalent is a

quantity that describes, for a given mixture and amount

of greenhouse gas, the amount of CO2 that would have

the same global warming potential (GWP), when

measured over a specified timescale (generally 100

years).

Circular economy

A circular economy aims to decouple economic growth

from the use of natural resources and ecosystems by

using those resources more effectively. By definition it is

a driver for innovation in the areas of material,

component and product reuse, as well as new business

models such as solutions and services. In a Circular

Economy, the more effective use of materials makes it

possible to create more value, both by cost savings and

by developing new markets or growing existing ones.

Circular Revenues

Circular Revenues are defined by revenues generated

through products and solutions that meet specific

Circular Economy requirements. These include

performance and access-based business models,

refurbished, reconditioned and remanufactured

products and systems, refurbished, reconditioned and

remanufactured components, upgrades or

refurbishment on site or remote, and products

containing at least 30% recycled plastics.

Dividend yield

The dividend yield is the annual dividend payment

divided by Philips’ market capitalization. All references

to dividend yield are as of December 31 of the previous

year.

Definitions and abbreviations7.4



Employee Engagement Index (EEI)

The Employee Engagement Index (EEI) is the single

measure of the overall level of employee engagement

at Philips. It is a combination of perceptions and

attitudes related to employee satisfaction, commitment

and advocacy.

Energy-using Products (EuP)

An energy-using product is a product that uses,

generates, transfers or measures energy (electricity, gas,

fossil fuel). Examples include boilers, computers,

televisions, transformers, industrial fans and industrial

furnaces.

Full-time equivalent employee (FTE)

Full-time equivalent is a way to measure a worker’s

involvement in a project. An FTE of 1.0 means that the

person is equivalent to a full-time worker, while an FTE

of 0.5 signals that the worker works half-time.

Global Reporting Initiative (GRI)

The Global Reporting Initiative (GRI) is a network-based

organization that pioneered the world’s most widely

used sustainability reporting framework. GRI is

committed to the framework’s continuous improvement

and application worldwide. GRI’s core goals include the

mainstreaming of disclosure on environmental, social

and governance performance.

Green Innovation

Green Innovation comprises all R&D activities directly

contributing to the development of Green Products or

Green Technologies.

Green Products

Green Products offer a significant environmental

improvement in one or more Green Focal Areas: Energy

efficiency, Packaging, Hazardous substances, Weight,

Circularity, and Lifetime reliability. The life cycle

approach is used to determine a product’s overall

environmental improvement. It calculates the

environmental impact of a product over its total life

cycle (raw materials, manufacturing, product use and

disposal).

Green Products need to prove leadership in at least one

Green Focal Area compared to industry standards,

which is defined by a segment-specific peer group. This

is done either by outperforming reference products

(which can be a competitor or predecessor product in

the particular product family) by at least 10%, by

outperforming product-specific eco-requirements or by

being awarded with a recognized eco-performance

label. Because of different product portfolios, business

segments have specified additional criteria for Green

Products, including product specific minimum

requirements where relevant.

Green Revenues

Green Revenues are generated through products and

solutions which offer a significant environmental

improvement in one or more of the Green Focal Areas:

Energy efficiency, Packaging, Hazardous substances,

Weight, Circularity, and Lifetime reliability. Green

Revenues are determined by classifying the

environmental impact of the product or solution over its

total life cycle.

Philips uses Green Revenues as a measure of social and

economic performance in addition to its environmental

results. The use of this measure may be subject to

limitations as it does not have a standardized meaning

and similar measures could be determined differently

by other companies.

Growth geographies

Growth geographies are the developing geographies

comprising of Asia Pacific (excluding Japan, South

Korea, Australia and New Zealand), Latin America,

Central & Eastern Europe, Middle East & Turkey

(excluding Israel) and Africa.

Hazardous substances

Hazardous substances are generally defined as

substances posing imminent and substantial danger to

public health and welfare or the environment.

Income from operations (EBIT)

Income from operations as reported on the IFRS

consolidated statement of income. The term EBIT

(earnings before interest and tax) has the same

meaning as Income from operations.

Income from continuing operations

Income from continuing operations as reported on the

IFRS consolidated statement of income, which is net

income from continuing operations, or net income

excluding discontinued operations

Lean

The basic insight of Lean thinking is that if every person

is trained to identify wasted time and effort in their own

job and to better work together to improve processes by

eliminating such waste, the resulting enterprise will

deliver more value at less expense.

Lives improved by Philips

To calculate how many lives we are improving, market

intelligence and statistical data on the number of

people touched by the products contributing to the

social or ecological dimension over the lifetime of a

product are multiplied by the number of those products

delivered in a year. After elimination of double counts –

multiple different product touches per individual are

only counted once – the number of lives improved by

our innovative solutions is calculated. We established

our 2012 baseline at 1.6 billion a year.

Mature geographies

Mature geographies are the highly developed markets

comprising of Western Europe, North America, Japan,

South Korea, Israel, Australia and New Zealand.



Operational carbon footprint

A carbon footprint is the total set of greenhouse gas

emissions caused by an organization, event, product or

person; usually expressed in kilotonnes CO2-equivalent.

Philips' operational carbon footprint is calculated on a

half-year basis and includes industrial sites

(manufacturing and assembly sites), non-industrial sites

(offices, warehouses, IT centers and R&D facilities),

business travel (lease and rental cars and airplane

travel) and logistics (air, sea and road transport).

Polyvinyl chloride (PVC)

Polyvinyl chloride, better known as PVC or vinyl, is an

inexpensive plastic so versatile it has become

completely pervasive in modern society.

REACH

Registration, Evaluation, Authorization and Restriction

of Chemicals (REACH) is a European Union regulation

that addresses the production and use of chemical

substances, and their potential impact on both human

health and the environment.

Responsible Business Alliance (RBA)

The Responsible Business Alliance (formerly known as

The Electronic Industry Citizenship Coalition (EICC)) was

established in 2004 to promote a common code of

conduct for the electronics and information and

communications technology (ICT) industry. EICC now

includes more than 100 global companies and their

suppliers.

Restriction on Hazardous Substances (RoHS)

The RoHS Directive prohibits all new electrical and

electronic equipment placed on the market in the

European Economic Area from containing lead,

mercury, cadmium, hexavalent chromium, poly-

brominated biphenyls (PBB) or polybrominated

diphenyl ethers (PBDE), except in certain specific

applications, in concentrations greater than the values

decided by the European Commission. These values

have been established as 0.01% by weight per

homogeneous material for cadmium and 0.1% for the

other five substances.

Sustainable Development Goals

The Sustainable Development Goals (SDGs) are a

collection of 17 global goals set by the United Nations.

The broad goals are interrelated though each has its

own targets. The SDGs cover a broad range of social

and economic development issues. These include

poverty, hunger, health, education, climate change,

water, sanitation, energy, environment and social

justice.

Sustainable Innovation

Sustainable Innovation is the Research & Development

spend related to the development of new generations

of products and solutions that address the United

Nations Sustainable Development Goals 3 (“to ensure

healthy lives and promote well-being for all at all ages”)

or 12 (“to ensure sustainable consumption and

production patterns”). This includes all Diagnosis &

Treatment and Connected Care & Health Informatics

innovation spend. In addition, innovation spend that

contributes to Green Products and healthy living at

Personal Health is included. Finally, innovation spend at

Other that addresses the SDGs 3 and 1 is included.

VOC

Volatile organic compounds (VOCs) are organic

chemicals that have a high vapor pressure at ordinary

room temperature. Their high vapor pressure results

from a low boiling point, which causes large numbers of

molecules to evaporate or sublimate from the liquid or

solid form of the compound and enter the surrounding

air, a trait known as volatility.

Voluntary turnover

Voluntary turnover covers all employees who resigned

of their own volition.

Waste Electrical and Electronic Equipment (WEEE)

The Waste Electrical and Electronic Equipment Directive

(WEEE Directive) is the European Community directive

on waste electrical and electronic equipment setting

collection, recycling and recovery targets for all types of

electrical goods. The directive imposes the

responsibility for the disposal of waste electrical and

electronic equipment on the manufacturers of such

equipment.

Weighted Average Statutory Tax Rate (WASTR)

The reconciliation of the effective tax rate is based on

the applicable statutory tax rate, which is a weighted

average of all applicable jurisdictions. This weighted

average statutory tax rate (WASTR) is the aggregation of

the result before tax multiplied by the applicable

statutory tax rate without adjustment for losses, divided

by the group result before tax.



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